Seyfarth Synopsis: Arbitration agreements with class and collective action waivers can help employers limit litigation exposure, especially to wage and hour claims. In recent years, however, in light of the “Me Too” movement, state and federal lawmakers have sought to limit or prohibit employment arbitration. Unlike in past years, the make-up of the new Congress, plus a more receptive Presidential administration, means efforts at the federal level have a greater chance of enactment than ever before. This blog series will follow these developments as they occur.

Over the last several years, arbitration agreements in the employment context have faced increasing scrutiny. During the last Congress (the 116th), over 100 arbitration-related bills were introduced. The new Congress is off to a similar start.

Unlike in the recent past, the current bills have a legitimate chance of passage and are more likely to be signed into law. Many of the bills introduced already (and those expected to be introduced) will garner overwhelming Democratic support and some Republican support; and if passed by Congress, we can expect President Biden to sign them into law. Thus, whether any of these bills will become law likely hinges on their support in the Senate, and whether the Senate filibuster remains intact.

Background

Many employers have implemented mandatory arbitration agreements with class and collective action waivers as a means of reducing employment litigation-related risk, especially from wage and hour lawsuits. As a condition of employment, employees and the employer agree to bring any claims they might have against each other in arbitration rather than in court, and they waive the right to bring class or collective claims. The Supreme Court has consistently upheld the use of arbitration agreements in employment, and explicitly upheld employment-related class and collective waivers in the recent decision in Epic Systems Corp. v. Lewis.

The plaintiffs’ bar has opposed arbitration agreements in the employment context for many years. That opposition strengthened with the widespread rollout of class and collective waivers, and was raised to another level with the advent of the “Me Too” movement. Their efforts to restrict employment arbitration have borne fruit at the state level. However, those statutes are likely preempted by the Federal Arbitration Act (“FAA”), which generally favors arbitration agreements and preempts state laws that would limit arbitration. Here are three examples:

  • Under Assembly Bill (AB) 51, enacted in 2019, employers are prohibited from requiring employees to arbitrate claims arising under the California Fair Employment and Housing Act and related employment statutes. A coalition of business organizations filed suit in federal court, which granted their request for an injunction on the grounds that AB 51 is preempted by the FAA. The case is currently on appeal to the Ninth Circuit.
  • New Jersey. New Jersey amended amended its anti-discrimination statute in 2019 to void “any provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment,” as against public policy. The U.S. Chamber of Commerce and a New Jersey pro-business organization filed suit on the grounds that the statute is preempted by the FAA. The case is pending.
  • New York. In 2018, New York prohibited employers from requiring employees to arbitrate sexual harassment claims. The state amended the law in 2019 to prohibit mandatory arbitration agreements for all discrimination claims. The statute is being challenged on preemption grounds in several lawsuits. Most recently, a federal district court held in February 2021 that the statute is preempted.

Congressional Bills Under Consideration

Unlike state laws, the FAA does not preempt other federal statutes. Thus, an enactment at the federal level to restrict employment arbitration—by an amendment to the FAA or through another statute—would not face the same procedural hurdles as laws like those in California, New Jersey, and New York.

Two of the more comprehensive and high-profile bills to be considered this year are the FAIR Act and the PRO Act.

  • Forced Arbitration Injustice Repeal (FAIR) Act (R. 963). On February 11, 2021, Representative Hank Johnson (D-GA) reintroduced the FAIR Act. The bill had previously passed the 116th Congress on September 20, 2019 by 225 to 186, and included the support of a number of Republicans. The current bill has 155 cosponsors in the House. If passed, the FAIR Act would preclude mandatory arbitration agreements for disputes involving consumer, investor, civil rights, employment, and antitrust matters; it would also prohibit all class and collective action waivers. Moreover, it would ban delegation clauses in arbitration agreements, under which arbitrability questions are decided by the arbitrator rather than the court.
  • Protecting the Right to Organize Act (PRO Act) (R. 842). The PRO Act was reintroduced in the new Congress on February 4, 2021. The PRO Act has strong support from Democrats and the Biden administration, and it would completely upend current labor relations law. Among its many pro-union and pro-employee provisions, the PRO Act would overturn the Supreme Court’s decision in Epic Systems and would make it an unfair labor practice for any employer to use class action waivers (not just unionized employers).

The PRO Act is expected to be opposed by virtually all Republicans; accordingly, its passage hinges on certain Democratic senators and whether the Senate retains the filibuster. In contrast, the FAIR Act is likely to receive some bipartisan support. Not only did the prior version of the FAIR Act receive some bipartisan support in the House, but some Republican senators may also support the bill—or at least a watered down version of it. For example, Senator Lindsay Graham (R-SC) has supported limiting mandatory arbitration agreements under the right circumstances. As drafted, the FAIR Act is unlikely to garner sufficient votes in the Senate to overcome a filibuster, but a compromise bill might.

Takeaways

Although state efforts to outlaw arbitration agreements and class and collective action waivers will likely fail under federal law, the efforts will continue—with the attendant legal risks for employers who implement arbitration agreements in those states. Moreover, the ongoing state and federal activity demonstrates a concerted effort to limit the use of arbitration agreements and class waivers in the employment context. Unlike in recent years, the composition of Congress is more conducive to sweeping change. And the prospects for passage will increase if the Democrats negotiate with Republicans, a number of whom are likely to support a middle ground-type bill, such as one limited to certain types of employment-based claims or that bans class and collective action waivers but not arbitration generally. As such, employers with arbitration programs, and those contemplating implementing such programs, should continue to monitor events in Washington and state houses. We will also provide updates as events unfold this year.