Some time ago, I was handling a lawsuit in which the plaintiff alleged sexual harassment and other misconduct under California’s Ralph and Bane Acts.  These laws, contained in the Civil Code, are not “employment laws” per se. They overlap the California Fair Employment and Housing Act in some respects. Nevertheless, some courts have held they apply in the employment context.  

Why would an employee bring Ralph / Bane Act claims when the FEHA will do?  Because the Ralph and Bane Acts were amended a few years back in an attempt by the Legislature to avoid mandatory arbitration. And our client had in place a valid arbitration agreement that should have resulted in arbitration of the case.  Long story short, I got into a dispute with plaintiff’s counsel over whether the Ralph and Bane Act claims were arbitrable. At that time, there was no court decision so holding.  So, we were going to litigate that arbitration issue for some time.

Alas, my case ended without a decision on that arbitration issue. But better late than never, the Court of Appeal just upheld arbitration of Bane and Ralph Act claims in Saheli v. White Memorial Med. Center.  Opinion is here.

This case is very important for employers who wish to rely on employment arbitration.  Not so much because of the Bane and Ralph Act claims per se.  Rather it’s because if the Court had upheld the changes to the law to avoid arbitration, it would be pretty easy for the Legislature to evade arbitration of other statutory violations as well.  Anyway . . . onto the case.

First, what’s the Ralph Act / Bane Act?  Per the court of appeal in Saheli,

The Ralph Act broadly provides that all persons “have the right to be free from any violence, or intimidation by threat of violence, committed against their persons or property” because of, among other things, the person’s race, religion, national origin, sex, sexual orientation, or position in a labor dispute. (§ 51.7, subd. (a).) Persons who violate section 51.7 are liable for actual and exemplary damages, a civil penalty of $25,000, and attorney fees. (§ 52, subd. (b); Venegas, supra, at p. 842.)

 The Bane Act, again per the court of appeal – 

was “intended to supplement the Ralph Civil Rights Act as an additional legislative effort to deter violence.” (Stamps v. Superior Court (2006) 136 Cal.App.4th 1441, 1447.) Section 52.1, subdivision (a), “provides that if a person interferes, or attempts to interfere, by threats, intimidation, or coercion, with the exercise or enjoyment of the constitutional or statutory rights of ‘any individual or individuals,’ the Attorney General, or any district or city attorney, may bring a civil action for equitable or injunctive relief. Subdivision (b) allows ‘[a]ny individual’ so interfered with to sue for damages [under section 52].”

These laws are “anti hate crime” statutes, that apply to non-employment settings.  However, an employee may bring claims under these laws if he or she can establish the type of conduct that amounts to a “hate crime.”  Not every set of facts will fit within that definition. But that does not stop plaintiffs from trying. Trust me.  So, with that explanation of the Ralph and Bane Acts, we turn to arbitration.

In case you/re new, California courts and the Legislature generally are not fans of arbitration of employment disputes. The California courts are frequently chipping away at the broad preemption power of the Federal Arbitration Act, and the U.S. and California Supreme Courts’ arbitration decisions. Now and again, the high courts step in to rein in the lower courts. But even the high courts’ cases can be confusing and sometimes make it hard for us employment lawyers to know what’s legal and what is not.

Anyway, as mentioned above, a couple of years ago, the Legislature tried a clever end-run around the Federal Arbitration Act by passing AB 2617.  AB 2617 amended the Ralph and Bane Acts.  As explained by the court in the Saheli case –

As amended, section 51.7 now provides that “[a]ny waiver of any legal right, penalty, remedy, forum, or procedure for a violation of this section, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity shall be knowing and voluntary, and in writing, and expressly not made as a condition of entering into a contract for goods or services or as a condition of providing or receiving goods and services.” (§ 51.7, subd. (3).)

It further provides that “[a]ny waiver of any legal right, penalty, remedy, forum, or procedure for a violation of this section that is required as a condition of entering into a contract for goods or services shall be deemed involuntary, unconscionable, against public policy, and unenforceable.”

(§ 51.7, subd. (4).) In addition, any “person who seeks to enforce a waiver of any legal right, penalty, remedy, forum, or procedure for a violation of this section shall have the burden of proving that the waiver was knowing and voluntary and not made as a condition of the contract or of providing or receiving the goods or services.” (§ 51.7, subd. (5).) AB 2617 amended the Bane Act to provide that the “rights, penalties, remedies, forums, and procedures of this section shall not be waived by contract except as provided in Section 51.7.” (§ 52.1, subd. (l).) 

Basically that language makes it illegal to require mandatory arbitration of Ralph or Bane Act claims as a condition of hire or employment (and as a mandatory provision in other “contracts for services.”).  The bill also says that no arbitration agreement is valid if it does not comply with AB 2617.

Sure, California has tried exempting other employment laws from arbitration, almost always without success. (See, for example, Labor Code section 229 (“Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.”).  Section 229 was held preempted many years ago.  I know you are screaming “PAGA” right now.  But the only reason why PAGA claims are not subject to compulsory arbitration under the Federal Arbitration Act is that the Legislature designed PAGA so that the “real” plaintiff is not the employee who signed the arbitration agreement, but rather the State’s Labor Commissioner, who has no agreement to arbitrate with the employer.

AB 2617 does not create a “representative” action or government plaintiff like PAGA. It’s similar to section 229 of the Labor Code, but longer and less clear. So, the court of appeal had to decide if Saheli’s arbitration agreement was enforceable against her Ralph and Bane Act causes of action.  And the court correctly held that the Federal Arbitration Act would not permit a state law to exempt itself from arbitration agreements.  

The meat of the Court’s analysis in Saheli is as follows:  

section 2 of the FAA “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.’ [Citation.] And not only that: The [FAA] 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 Ralph Act and Bane Act, as amended by AB 2617, unquestionably discriminate against arbitration by placing special restrictions on waivers of judicial forums and procedures in connection with claims brought under those acts. In effect, sections 51.7 and 52.1 deem an agreement to arbitrate such claims unenforceable unless the party seeking to enforce it proves (1) the other party knowingly and voluntarily agreed to arbitration, and (2) the arbitration agreement was not made a condition of a contract for goods or services or of providing or receiving goods or services.

*** 

The legislative history of AB 2617 confirms that the Ralph Act’s and Bane Act’s special requirements represent a hostility to arbitration and their purpose is primarily, if not exclusively, to discourage arbitration of Ralph Act and Bane Act claims.

 

There is more, but the headline is clear.  The court rejected the Legislature’s attempt to override the Federal Arbitration Act and create another special class of statute that avoids arbitration. A final note, the opinion includes a concurrence by Justice Rubin, in which he laments the U.S. Supreme Court’s arbitration jurisprudence. He argued that the Legislature’s carve out of Bane and Ralph claims from arbitration is just like holding an arbitration agreement is unconscionable. His opinion did not carry the day, so I’m not going to take time to explain why it’s so wrong.

We await the U.S. Supreme Court’s ruling on whether class action waivers violate the National Labor Relations Act…. Any day now.  When the ruling comes down, I will let you know.

 

 

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