On August 27, 2015, the California Legislature passed AB 465, a bill that would make mandatory agreements to arbitrate employment disputes illegal in the state.

Governor Jerry Brown has until October 11, 2015, to sign the bill. If signed, the new law would affect employment arbitration agreements entered into, revised, renewed, or extended on or after January 1, 2016. The new law would also make it unlawful for an employer to threaten, retaliate, or discriminate against any person because he or she refuses to sign an agreement to arbitrate. In litigation challenging an arbitration agreement under the new law, an employer would have the burden to prove that the employee’s agreement to arbitrate was voluntary and not made as a condition of employment. Employers found to have violated the new law would be liable for injunctive relief and reasonable attorneys’ fees.

The new law would not apply to securities brokers and others required to join a self-regulatory organization by Securities and Exchange Commission regulations. Anyone personally represented by counsel during negotiation of an employment arbitration agreement would also be excluded from coverage.

Current law provides safeguards designed to ensure that agreements to arbitrate employment disputes are made knowingly and that employees’ due process rights are protected. Arbitration agreements must be mutual, provide for sufficient discovery, and allow for recovery of all remedies available in a court of law. Employees cannot be required to pay unreasonable fees or expenses in order to pursue their claims. Despite these protections, legislators identified arbitration forum limits on discovery and the unavailability of appeal as factors compelling a ban on mandatory agreements.

Legal challenges to the new law are likely, including on the ground that the law is preempted by federal law favoring arbitration agreements. However, such litigation is unlikely to delay the new law’s enforcement.

What California Employers Should Do Now

• Carefully review existing mandatory employment arbitration agreements. If the bill becomes law, make modifications (if needed) before January 1, 2016, to mandatory agreements signed by existing employees.
• Be aware that, if Governor Brown signs the bill, an arbitration agreement entered into, revised, extended, or renewed on or after January 1, 2016, should include language indicating that the agreement is not mandatory and that signing the agreement is not a condition of employment.
• Consult with counsel to ensure that current arbitration agreements withstand legal scrutiny and to discuss solutions allowing the continued use of arbitration agreements if the bill becomes law. Strategies to encourage employees to sign arbitration agreements that meet the requirements of AB 465 are available.