New California Laws: DFEH Exhaustion Deadline Extended to Three Years, and a Landmark (Maybe?) Ban on Forced Arbitration

Two important new employment laws will hit the books in California on January 1, 2020.

Two Additional Years to Exhaust Discrimination-Based Complaints.  First, the time limit for filing a claim of discrimination, harassment, and retaliation with the Department of Fair Employment and Housing ("DFEH"), which is a prerequisite to filing such a claim in court, has been extended from one year to three years.  The one-year deadline was unusually short among deadlines for legal claims (for example, California wage claims typically go back at least three years, and breach of written contract claims go back four years).  The amendment will allow employees more leeway to decide whether, how, and when to enforce their rights when they experience unlawful discrimination or harassment.  What will happen to claims that are currently time-barred but would be timely under the new law?  The act states that it "shall not be interpreted to revive lapsed claims."  This appears to mean that any claim accruing less than a year prior to the law taking effect will have another two years in which it can be brought; and any claim accruing more than a year before the law takes effect will be time-barred if a DFEH complaint has not already been filed (whether that reading is correct will likely be taken up by the courts after this law goes into effect).  The law also helpfully states that the filing of an intake form with the DFEH stops the clock from running (under prior law, the clock ran until the DFEH issued a "complaint," which sometimes put employees in the hazardous position of relying on DFEH employees to move quickly to ensure that the deadline was met).  The bill, AB-9, is available here.

A Ban on Forced Arbitration Agreements... Maybe?  Second, the Legislature has limited the ability of employers to require employees to arbitrate disputes (with a major caveat set forth below).  The new law will add section 432.6(a) of the Labor Code, which reads:  "A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of [the non-discrimination provisions of the Fair Employment and Housing Act ("FEHA")] or [the Labor Code], including the right to file and pursue a civil action...."  This provision is also incorporated into FEHA by reference, and violation of it now constitutes an unlawful employment practice under FEHA. The law goes further to prevent a technique known as "opt-out" provisions in arbitration agreements, which allow the employee to take affirmative steps to "opt-out" of the arbitration provision within a specified period, such as the first 30 days of employment, by for example sending a letter to the company's legal department saying that they wished to opt out.  Such "opt-out" provisions, which employees could be expected almost never to exercise, allowed employers to argue that the arbitration provision was not "mandatory" because the employee had voluntarily chosen not to opt out.  This loophole is closed by new Labor Code section 432.6(c):  "For purposes of this section, an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment."  The law also provides for attorneys' fees.  The new law applies to "contracts for employment entered into, modified, or extended on or after January 1, 2020."

However, the law includes an exception that may swallow the rule.  In an effort to head off preemption by the Federal Arbitration Act ("FAA"), which has repeatedly been used over the past decade to shut down efforts by California and its courts to preserve access to certain types of class actions, the law states:  "Nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act."  This may succeed in avoiding preemption, but will the effect be that most arbitration agreements are untouched by the new law?  Time will tell, but in the meantime, employers in California will have to decide whether to keep arbitration agreements in place in reliance on this exception.  The bill, AB-51, is available here.