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California AB 51 Bans Mandatory Employment Arbitration Agreements

Content sponsored by Littler.

On October 13, 2019, California Governor Gavin Newsom signed Assembly Bill (AB) 51 into law, banning most employment arbitration agreements in California starting January 1, 2020. This new law is expansive in scope but short on certainty, as it raises several questions and will likely face legal challenges.

What does AB 51 do?

AB 51 prohibits employers from requiring applicants, employees, and potentially independent contractors to waive any right, forum, or procedure established by the California Fair Employment and Housing Act and the Labor Code. The law applies to “contracts for employment entered into, modified, or extended on or after January 1, 2020.”

The stated purpose of AB 51 is to ensure that any contract relating to those rights and procedures be entered into voluntarily and without coercion. Due to its particular placement in the Labor Code, violation of the law will constitute a misdemeanor.

Last year, then-Governor Jerry Brown vetoed a similar bill, AB 3080 (2018). In his veto message, he stated: “Since this bill plainly violates federal law, I cannot sign this measure.” Governor Brown did sign SB 1300 (2018), however, which, among other things, added section 12964.5 to the Government Code.

That section contains language similar to this year’s AB 51, as it makes it unlawful for an employer to require that employees, as a condition of employment, waive their right to pursue a civil action for an alleged violation of the Fair Employment and Housing Act.

What about preemption?

Generally, the Federal Arbitration Act, 9 U.S.C. § 1, et seq., (FAA) preempts state laws like AB 51 (and Government Code section 12964.5) that attempt to regulate and/or restrict arbitration agreements more strictly than other types of contracts. The US Supreme Court has issued recent decisions that uphold the primacy of the FAA.

AB 51, however, expressly states that it does not invalidate a written arbitration agreement that is otherwise enforceable under the FAA. Such statutory language is untested in California, so the impact of this “savings clause” is difficult to predict at this time.

Many in the labor and employment law field anticipate a successful legal challenge to AB 51 on the grounds that it is preempted by the FAA, which would eventually invalidate the law. Such a challenge could mean that the law’s validity may remain unsettled for some time.

Next steps

Employers face difficult choices in the wake of AB 51. Existing arbitration agreements are unlikely to be challenged unless they are affirmatively entered into, modified, or extended on or after January 1, 2020. Starting January 1, 2020, employers could consider modifying their arbitration agreements to make them purely voluntary, or “opt-in” agreements.

Employers who roll out mandatory arbitration or “opt-out” clauses after the first of the year run the risk that their conduct will be considered to be a criminal misdemeanor. Many options appear imperfect in the wake of the statute.

Employers may also wish to consider supporting or joining a trade association or a coalition of like-minded businesses to mount a legal challenge to the law on FAA preemption grounds. The Supreme Court has consistently and uniformly invalidated state efforts such as this that interfere with FAA-governed arbitration agreements.

Due to the complexity of this issue and the wide variety of arbitration programs and agreements that are in effect and could be contemplated in California workplaces, businesses with operations in the Golden State should consult with competent employment law counsel before implementing arbitration agreements, or before modifying existing arbitration programs.

About the Authors

Bruce SarchetBruce Sarchet, a shareholder at Littler, has focused his entire legal career on the representation of management in labor and employment law matters and has particular expertise in issues, including unionized employers, violence in the workplace, employment discrimination, and employee leaves of absence.

Robert FriedmanRob Friedman is the office managing shareholder of Littler’s Austin, Dallas, and Fayetteville offices. He is board certified in labor and employment law by the Texas Board of Legal Specialization. Friedman advises and represents employers in virtually every aspect of the employee-employer relationship, and routinely defends businesses in wage and hour class and collective action litigation in state and federal courts across the country.

Jessica MarinelliJessica L. Marinelli advises and represents employers in a wide variety of matters in all areas of labor and employment law. She has experience serving as in-house counsel, which gives her unique insight into clients’ goals and the many interests they must often balance. Prior to joining Littler, Marinelli was a legal fellow for the US House of Representatives in Washington, DC, and she was a judicial extern for the Superior Court of California in Los Angeles.

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