New California Law Prohibits Mandatory Arbitration for Employment Claims

On October 10, 2019, California Governor Gavin Newsom signed a bill (AB 51) intended to prohibit employers from requiring employees to sign agreements that they will submit claims arising from their employment to binding arbitration (as opposed to resolution of the dispute in the civil court system, by judge or jury). The law takes effect January 1, 2020. The new law, if ultimately enforced, has important implications for any employer that requires employees to sign arbitration agreements.

What the Law Says

Assembly Bill 51 adds Section 432.6 to the California Labor Code. While it was packaged as a “sexual harassment” bill, AB 51 covers virtually any claim arising from the employment relationship (excluding workers’ compensation claims, which are not arbitrable in any event). The new law:

  • Prohibits any person (including employers) from requiring, as a condition of employment or employment-related benefits, that employees “waive any right, forum, or procedure” for violations of the California Fair Employment and Housing Act (FEHA) or the California Labor Code.
  • Prohibits employers from including arbitration agreements/clauses that provide an “opt-out” clause, requiring an employee to affirmatively opt-out of mandatory arbitration.
  • Creates a new private right of action (aka “claim”) against any employer that violates the new law. In addition to injunctive relief, the law permits a prevailing employee to recover her attorney’s fees.
  • Does not apply to any agreement entered into before January 1, 2020.
  • Is not intended to invalidate an agreement otherwise enforceable under the Federal Arbitration Act (FAA).
  • Does not apply to post-dispute settlement or severance agreements.

Why the New Law Might Ultimately Be Held Unenforceable

Most experts expect to see legal challenges to the new law, primarily on the grounds that it conflicts and is preempted by the FAA, which dates from 1925 and exists to further arbitration in cases involving interstate commerce. Individual state laws that “stand[] as an obstacle to” arbitration have been repeatedly struck down by the United States Supreme Court as preempted by the FAA. Whether the new law will survive these challenges is presently unclear.

What Employers Should Do

Given the uncertainty surrounding AB 51, it is important that employers who currently (or intend to) require workers to sign arbitration agreements take steps before the end of 2019 to ensure compliance if the law is ultimately enforced. No employer should want to be a “test case.”

Because the law specifically excludes FAA-governed agreements, certain employers (depending on industry) may still be able to require employees to sign an agreement to submit employment disputes to arbitration under the FAA (stating the basis for FAA jurisdiction).

Alternatively, employers could continue to include arbitration provisions, but exclude administrative charges that employees may file with the DFEH, EEOC, NLRB, DOL or the California Labor Commissioner from arbitration. Unfortunately, these exceptions would essentially remove the protections afforded by arbitration in the first place.

As the law in this area remains fluid, employers should not hesitate to consult with their qualified employment law professionals to ensure they remain compliant with all state and federal employment laws, including AB 51.

The Law Offices of Alex Craigie helps employers throughout California prevent, address and resolve employment disputes in a logical and cost-effective manner. Reach us at (323) 652-9451, (805) 845-1752 or at [email protected].

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