Two years after the start of the #MeToo movement, the law concerning discrimination and harassment in the workplace continues to develop. This year, the California legislature passed—and Governor Newsom signed—several significant bills that raise the stakes for California employers. Two of the new laws—one extending the statute of limitations for discrimination claims and another restricting arbitration agreements—are similar to bills vetoed previously by former Governor Jerry Brown.

Longer Statute of Limitations for Discrimination Claims

AB 9 extends the deadline for individuals to file claims of discrimination, harassment, or retaliation with the Department of Fair Employment and Housing from one to three years. The law is similar to a bill vetoed by Governor Brown last year, who said that the one-year statute of limitations encouraged swift dispute resolution.

Though the law does not revive lapsed claims, it does extend the limitations period for claims that have accrued but for which the prior one-year statute of limitation has not expired. The law also adds language to the Fair Employment and Housing Act (FEHA) clarifying that “filing of a complaint” means filing of an intake form with the department, and the date of a verified complaint relates back to the date of filing of the intake form.

New Restrictions on Mandatory Arbitration

AB 51 adds section 432.6 to the Labor Code, which prohibits employers from requiring applicants or employees to waive any right, forum, or procedure for the violation of FEHA or the Labor Code as a condition of employment or continued employment, or receipt of any employment-related benefit. The law does not prohibit arbitration of employment claims but makes clear any agreements to arbitrate must be voluntary.

Any requirement for employees to “opt out” or take any other alternative action to preserve their rights to seek relief in another forum will be deemed a condition of employment. The law also prohibits employers from discriminating or retaliating against applicants and employees who do not consent to the waiver of any right, forum, or procedure.

In addition to any other remedies available, the law expressly states that employees may recover reasonable attorneys’ fees to enforce their rights under the new Labor Code Section.

Former Governor Brown vetoed a similar bill last year, stating that it would be found to be preempted by the Federal Arbitration Act. Perhaps in anticipation of such a challenge, the law states “nothing in [Labor Code 432.6] is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act (9 U.S.C. Sec. 1, et seq.).” Challenges to the law on preemption and other grounds are expected.

Neither post-dispute settlement agreements nor severance agreements are subject to the law, which applies only to contracts entered into, modified, or extended on or after January 1, 2020.

Severe Penalties for Employers Who Fail to Timely Pay Arbitration Fees or Costs

SB 707 creates significant penalties for companies that fail to timely pay fees required to commence or continue an arbitration—whether intentional or not. Under the new law, if arbitration has not yet commenced and the party who drafted the arbitration agreement fails to pay all required fees and costs within 30 days of the due date, the drafting party waives its right to compel arbitration.

The employee (or worker who alleges misclassification as an independent contractor) then has two options:

  1. Withdraw the claim from arbitration and proceed to civil court, which must impose sanctions on the drafting party; or
  2. Compel arbitration and have the drafting party pay all reasonable fees and costs of arbitration.

If an arbitration proceeding is already underway, and the drafting party has not paid fees required to continue the arbitration, an employee may:

  • Unilaterally elect to withdraw the claim from arbitration and instead proceed to court;
  • Continue the arbitration if the arbitrator agrees;
  • Petition the court for an order compelling the payment of the arbitration fees; or
  • Pay the drafting party’s fees and later be awarded the fees that have been paid regardless of outcome.

If the employee elects to proceed in civil court, he or she may bring a motion to recover all costs and fees paid in the abandoned arbitration proceeding, and the court must impose monetary sanctions on the drafting party. If the employee elects to continue with arbitration, the arbitrator must impose monetary, issue, evidence, or terminating sanctions on the drafting party.

No express exemption is provided for a situation where a good-faith dispute exists as to the forum costs. For this reason, and more broadly because the law imposes hardships on parties attempting to enforce arbitration agreements, the law may be subject to preemption challenges.

Harassment and Discrimination Prevention for Construction Industry Employers

Under SB 530, the Division of Labor Standards Enforcement must recommend an industry-specific harassment and discrimination prevention policy and training standard for construction industry employers. The law also clarifies how training requirements are satisfied when employees or apprentices are subject to a multi-employer collective bargaining agreement.

Be Prepared: Recommendations for Employers

It is a good idea to start preparing for these changes now. Employers should:

  • Consider whether to ask employees to sign pre-dispute arbitration agreements on or after January 1, 2020, or hold off until expected challenges are resolved;
  • Be careful to pay all forum costs within 30 days of the due date for arbitration agreements that remain in effect and that were entered into before January 1, 2020;
  • Monitor developments concerning challenges to the new Labor Code provision restricting arbitration;
  • Review information retention and destruction policies to ensure that relevant information needed to defend any potential FEHA lawsuit or charges is preserved under the longer statute of limitations; and
  • Revise training materials and policies to ensure they are consistent with the longer statute of limitations.