California limits NDAs but rejects attempt to outlaw arbitration

Dive Brief:

California's governor has signed S.B. 820, which will limit employers' use of nondisclosure agreements (NDA). Separately, Gov. Jerry Brown (D) vetoed a bill, A.B. 3080, that would have outlawed mandatory arbitration agreements between businesses and employees.
S.B. 820 will prohibit provisions in settlement agreements that prevent "the disclosure of factual information relating to certain claims of sexual assault, sexual harassment, or harassment or discrimination based on sex." An exception can be made if requested by the claimant, the bill says.
Brown vetoed a bill similar to A.B. 3080 two years ago, and this time said his concerns are even stronger. “The direction from the Supreme Court since my earlier veto has been clear — states must follow the Federal Arbitration Act and the Supreme Court’s interpretation of that Act,” he said, citing a 2015 decision. The bill took specific aim at agreements that prohibit workers from discussing sexual harassment.

Dive Insight:

The California bills, like many others, were introduced in the wake of the #MeToo movement.

Critics say arbitration and NDAs silence vulnerable employees by pushing them into private negotiations with their employers and allow bad behavior to fester behind a curtain of secrecy, according to a story in the Sacramento Bee. Gretchen Carlson, the former Fox News host who set off a spate of sexual harassment claims against network head Roger Ailes, had backed A.B. 3080. At a press conference, she called forced arbitration "a harasser's best friend" and "un-American," the Sacramento Bee reported.

Arbitration is also thought to benefit employers. As noted in a recent Vox article, employees are statistically less likely to win and also more likely to receive smaller settlements. Juries are considered more sympathetic to workers’ claims and more willing to give large damages awards. This reality gives workers leverage in negotiating larger settlements because businesses want to avoid trial, according to Vox. Additionally, research shows that arbitrators can be biased toward employers who repeatedly pick them to handle their cases. This is known as the "repeat player effect," a term coined in 1997 by a public affairs professor at Indiana University Bloomington whose research showed that workers were nearly five times less likely to win cases in these situations.

California is one of a handful of states working to address these concerns, and efforts are underway at the federal level, as well. In December, a bipartisan group of lawmakers introduced the Ending Forced Arbitration of Sexual Harassment Act, which exempts sexual harassment cases from required arbitration. In March, Democratic Sen. Richard Blumenthal and a group of Senate Democrats introduced a bill, the Arbitration Fairness Act, proposing that businesses should not be allowed to require employees and consumers to take their claims to arbitration.

While California employers' ability to mandate arbitration appears untouched, businesses in the state may need to adjust their NDA requirements. "Settlement agreements signed after January 1, 2019 should be [reviewed] by counsel to ensure compliance with the new restrictions," Sahara Pynes, a partner at Fox Rothschild, wrote in a blog post for the firm.