Effective January 1, 2020, Assembly Bill 51 will prohibit employers from requiring employees to waive forum or procedure rights under the Fair Employment and Housing Act or the Labor Code in favor of arbitration as a condition of employment, continued employment or the receipt of any employment-related benefit. AB 51 also prohibits an employer from retaliating against any employee who refuses to consent to the waiver of such rights. For the sake of clarity, the new law states that an agreement that permits an opt-out of a waiver or which requires any affirmative action on the part of the employee to preserve his or her rights is deemed a condition of employment and is thus prohibited. Agreements to arbitrate disputes entered into voluntarily are still permitted, as are arbitration provisions included within negotiated severance and settlement agreements. Employers who violate the law are subject to injunctive relief, attorney’s fees and “any other remedies available”.
This law has been coming for a long time. Governor Brown vetoed two prior efforts to pass similar legislation, AB 3080 in 2018 and AB 465 in 2016. However, acting with the support of labor unions and various plaintiffs’ attorney groups, Governor Newsom signed AB 51, seemingly without hesitation. In so doing, the Governor and the Legislature may have greatly restricted a California employer’s ability to control the expense and inconvenience of litigation through arbitration.
I write “may” because it is not yet clear what the impact of the Federal Arbitration Act will be on AB 51. The FAA applies to any transaction where the parties are involved in interstate commerce and favors the enforcement of private arbitration agreements. As such, the FAA generally serves to preempt state law that disfavors the enforcement of arbitration agreements. State laws that govern the procedures of arbitration, however, are not subject to preemption based on the FAA. The California Legislature has attempted to avoid this issue by inserting language in AB 51 that the new law is not intended to “invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act”. Is AB 51 purely procedural in nature or does it disfavor the enforcement of arbitration agreements between employers and employees? It will be left for the courts to determine if the FAA will preempt AB 51 in legal challenges which are sure to come in the very near future.
In the meantime, California employers preferring arbitration in employment disputes should obtain signed mandatory arbitration agreements from employees before year end.
