California Legislature Attempts to Ban Employment Arbitration Regarding Labor Claims

by Weintraub Tobin
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On August 31st, the California Legislature passed a new bill (AB 465) to ensure that waivers of employment rights and procedures, often through arbitration agreements, are made voluntarily and not as a condition of obtaining or keeping employment. As the Wall Street Journal recently reported, the number of companies using arbitration agreements in the workplace has risen dramatically from 16% in 2012 to 43% in 2014. Critics of such forced waivers of workplace claims contend that they eliminate important procedural guarantees of fairness and due process provided by our judicial system. The bill’s author, Assembly Member Roger Hernández, framed the issue as follows: “No worker should be forced to choose between a job and giving up core labor rights and procedures. Existing labor laws are meaningless if workers are forced to sign away enforcement of those rights.”

However, despite what sounds like a well-intentioned law, opponents of the bill argue that it is unnecessary and unenforceable. California case law already provides adequate protections against such waivers so long as they include provisions for: (1) a neutral arbitrator; (2) no limitation of remedies; (3) adequate opportunity to conduct discovery; (4) written arbitration award and judicial review of the award; and (5) no requirement for the employee to pay unreasonable costs that they would not otherwise incur in litigation. Arbitration agreements that do not include these provisions have regularly been struck down as unconscionable. Further, coercion and lack of consent by employees, the apparent injustices target by this bill, have always been grounds to invalidate contracts.

Perhaps most importantly, opponents of the bill have readily pointed out that the law likely will be preempted by federal law. The Federal Arbitration Act (“FAA”) provides that arbitration agreements are “valid, irrevocable, and enforceable.” As the U.S. Supreme Court held in 2011, “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” AT&T Mobility v. Concepcion, 563 U.S. 333 (2011).  It’s hard to imagine how AB 465 will survive such a clear case of preemption. And if it does, given the recent rise in workplace arbitration agreements, the new law would needlessly redirect these disputes back to an already overburdened and underfunded judicial system.

Realistically, if Governor Brown signs the bill and it survives preemption, it will only provide a minimal level of protection for employees. Employers may be able to comply with the new law simply by including clear language that the arbitration agreement is voluntary and not a condition of employment. Whether courts will impose a higher standard for somehow proving that the employee’s waiver is voluntary remains to be determined. We shall see if Governor Brown signs the bill.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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