Bill to block pre-employment arbitration agreements passes in legislative committee

SACRAMENTO -- A bill that would prevent employers from requiring pre-employment arbitration agreements passed a key committee test on Tuesday. But business opponents say AB 3080 violates federal law and will be preempted if signed into law.

The bill is seen as a central part of the state Legislature's response to the #MeToo movement against sexual harassment. It states an employer cannot insist that an employee engage in arbitration as a condition of employment, nor require workers to waive rights under the state Labor Code or the Fair Employment and Housing Act. It passed the Assembly Judiciary Committee 7-2.

AB 3080 is sponsored by the Consumer Attorneys of California and a large coalition of labor groups. They say arbitration agreements allow companies to hide illegal behavior, including sexual harassment and labor abuses.

In a move designed to illustrate the need for the bill, the committee took the extremely rare step of subpoenaing a witness in order to allow her to testify in defiance of a nondisclosure agreement. Tara Zoumer was fired from WeWork in San Francisco for refusing to sign a binding arbitration contract then forced to arbitrate her wrongful termination claim in New York.

"The only reason I am able to speak to you today is by the grace of this subpoena," Zoumer began. "Without it, I risk being sued for telling you the truth of my experience."

Zoumer then testified she was part of "an exploited and overworked labor force" that allowed the company to grow to billions of dollars in value and then faced a "privatized and silencing legal system" when she was retaliated against for trying to organize other workers.

AB 3080 is officially opposed by more than two dozen business groups. They say the bill will increase their litigation costs and that it is preempted by the Federal Arbitration Act. This is a 1925 law that limits the ability of state governments to invalidate arbitration agreements.

"The essence of the Federal Arbitration Act states that you cannot discriminate against arbitration when you're writing a contract, and that's what this bill does," testified Jennifer Barrera, a lobbyist for the California Chamber of Commerce.

Barerra pointed to a March 14 ruling from the 2nd District Court of Appeal. The court ordered a former medical resident to arbitrate her harassment claim against a medical center where she worked.

The ruling found that AB 2617, a 2014 California law that limited the waiving of civil rights that can be waived in contracts, was preempted by the federal law because it discriminates against arbitration "by placing special restrictions on waivers of judicial forums." Saheli v. White Memorial Medical Center, 2018 DJDAR 2413 has been appealed to the California Supreme Court.

Barerra argued employers chose arbitration in order to provide predictability, shorten litigation and avoid paying opponent attorney fees at the end of a years-long case. She also characterized it as a way for employers to protect themselves against "the litigation environment here in California."

Cliff Palefsky, a partner with McGuinn, Hillsman & Palefsky APC in San Francisco and a longtime critic of mandatory arbitration, said AB 3080 was carefully crafted to conform to the federal law by governing agreements before they are signed. The appeals court ruled AB 2617 invalid because it had the effect of throwing out an arbitration agreement that had already been signed.

"The reason this narrow bill is not preempted is very simple: It does not invalidate or void any arbitration agreement, period," Palefsky said.

The committee's analysis of AB 3080 stated that the opponents' preemption argument was "not without merit" because the act has become a moving target.

"Over the past two decades, the United States Supreme Court has broadened the scope and applicability of the Federal Arbitration Act, thereby causing the Act to preempt a growing number of state laws," it stated.