Saturday, March 30, 2019
As the old saying goes, a person is capable of not understanding a great deal when his or her paycheck is caught up in the not understanding. So I fully appreciate why many have difficulty understanding that compulsory arbitration of workers’ compensation claims could be required at any time by any employer in the United States. But it is a fact. An employer could simply say, “as a condition of employment you agree to have any workers’ compensation claim resolved in arbitration.” If you refuse to sign such an agreement, you are not hired. Employment at will principles hold that an employer can refuse to hire anyone for a good reason, a bad reason, or no reason at all. Any law that any state enacted regulating the content of or circumstances surrounding the arbitration agreement is preempted. (See below)
There is good news afoot, however, from the perspective of state-based workers’ compensation systems. A number of states, in the wake of #MeToo, have been enacting laws in opposition to, among other things, secret arbitration awards required by arbitration agreements. (Private employers have been implementing similar restrictions, but I don’t take that especially seriously since private policies can be changed the instant an issue leaves the public spotlight). An obscure portion of the tax code—the so-called “Harvey Weinstein” provision—now prevents employers from taking sexual harassment allegation costs as a tax deduction if they compel nondisclosure as a condition of a sexual harassment settlement. Aside from this kind of “bold” policy move, I’m most interested in state laws that set up a direct challenge to the Federal Arbitration Act. To repeat myself, any state law dictating the content of an arbitration agreement is almost certainly prohibited by the FAA.
I’d like to focus on the just passed New Jersey law. It provides the following:
- A provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable
- No right or remedy under the [NJ] “Law Against Discrimination,” or any other statute or case law shall be prospectively waived
- Collective bargaining agreements are exempted
- Any employment contract or settlement agreement concealing details relating to a claim of discrimination, retaliation, or harassment (NDAs) are against public policy and unenforceable against a current or former employee who is a party to the contract or settlement
- But if the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable, then the NDA is also be unenforceable against the employer
- This law is not to be construed to prohibit an employer from requiring an employee to sign a “non-compete” or “proprietary secrets” agreement
- A person attempting to enforce a provision deemed against public policy and unenforceable under this law shall be liable for the employee’s reasonable attorney fees and costs
- No person may take retaliatory action (failure to hire, discharge, suspension, demotion, discrimination) against a person, on grounds that the person does not enter into an agreement that contains a provision deemed against public policy unenforceable under the law
- All state law tort remedies are available to prevailing plaintiffs, who also are entitled to attorneys, fees
What is most interesting about this law is that the heart of it is almost certainly "obstacle preempted" by the FAA. Proponents of the state law will note that the NJ language does not specifically reference arbitration. But those proponents must not (fully) realize that Justice Elena Kagan scuttled such arguments in the Kindred Nursing Centers case:
The FAA thus preempts any state rule discriminating on its face against arbitration—for example, a “law prohibit[ing] outright the arbitration of a particular type of claim.” . . . And not only that: The Act also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.
The first and second bullets of the NJ law are obviously (at least to my eyes) not long for this world, but what about the fourth?—“contracts” requiring NDAs (non-disclosure agreements) are against public policy and unenforceable against a current or former employee. Proponents doubtless say that an NDA prohibition does not touch the substance of the arbitration agreement, but rather the dissemination of its outcome. But what the provision really says is that if the parties’ arbitration agreement contains an NDA it is unenforceable; it is a nullity. The conditions precedent for entering into an arbitration agreement are dictated by a state. Again from Justice Kagan:
[T]he Act cares not only about the ‘enforce[ment]’ of arbitration agreements, but also about their initial ‘valid[ity]’—that is, about what it takes to enter into them. Or said otherwise: A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the Act than a rule selectively refusing to enforce those agreements once properly made.
So why even pass dead-on-arrival laws of this type? I think it is state-level signalling -- it is ultimately a message to Congress. It is all well and good, this signal may be communicating, to pass a #MeToo bill applicable only to Congress (some are confused on the limited scope of this law which is applicable only to federal legislative branch employees), you’d better also get moving on “national fix” legislation (see proposals here, here, and here). But I would also ask why arbitration is unjust (and obviously not voluntary for most employees) only with respect to sexual harassment claims. What about other forms of gender discrimination (both under federal and state law), racial discrimination (both under federal and state law), age discrimination, disability discrimination, wage and hour claims (state and federal), and—oh yeah, workers’ compensation claims—the arbitration frontier we haven’t quite gotten to yet? Will the signal work? I don't know. What I do know is that many billable attorney hours will be racked up drafting motions to hold state law employment cases in abeyance and to compel arbitration.
Michael C. Duff