AB 465 is pending approval from Governor Jerry Brown.  If approved, it will go into effect on January 1, 2016.  Notably, AB 465 will prohibit California employers from requiring most individuals to enter into arbitration agreements as a condition of their employment.  As we reported in the past, since the United States Supreme Court’s 2011decision in AT&T Mobility LLC v. Concepcion (“Concepcion”), which held that class action waivers in arbitration agreements are valid, arbitration agreements have been an effective tool for California employers.  However, AB 465 may – at least temporarily – turn Concepcion on its head.

AB 465 is a game changer because it would require arbitration agreements to be voluntary and expressly not made as a condition of employment.  This would be a significant shift from current law which requires a showing of both procedural and substantive unconscionability before invalidating an arbitration agreement.  This means that employers could no longer require arbitration agreements to be a condition of employment. Hmmmm...

Other provisions of  AB 465 include (1) requiring employers to prove the arbitration was entered into voluntarily, (2) prohibiting employers from threatening, retaliating against and/or discriminating against any person for refusing to sign an arbitration agreement, and (3) providing recovery of attorneys’ fees by successful employees who invalidate arbitration agreements.

On the other side of the coin, even if the Governor approves AB 465, it will likely be challenged since it ostensibly is contra to the Concepcion decision holding that the Federal Arbitration Act preempted California contract law deeming class action waivers in arbitration agreements unenforceable.  

Given the current landscape, employers should consider implementing arbitration agreements before AB 465 goes into effect or  review current arbitration agreements to ensure they are currently legally compliant.  If AB 465 becomes law (effective January 1, 2016), then the arbitration agreements will need to be revised before being presented to new employees.