AB 51, signed into law by Governor Newsom last October, is the California Legislature’s latest attempt to outlaw the use of mandatory employment arbitration agreements. Fortunately, the new law, scheduled to go into effect on January 1, 2020, has already been challenged in federal court due to the preemptive effect of the Federal Arbitration Act (“FAA”).
Employment arbitration agreements are an invaluable tool for employers to control costs by keeping employment-related claims out of the courts or state administrative agencies. AB 51 claims it is not prohibiting arbitration agreements, but merely prohibiting an employer from requiring any job applicant or existing employee, as a condition of their employment, to waive their right to file claims or make complaints against their employer in the courts or directly with a state agency for any alleged violation of the Fair Employment and Housing Act (“FEHA”) or the California Labor Code. Furthermore, employers are prohibited from threatening, retaliating or discriminating against, or terminating a job applicant or existing employee for refusing to agree to such a waiver.
The net effect of this bill means that any arbitration agreement entered into after January 1, 2020, will be challenged as void by plaintiff attorneys. Additionally, violation of the law criminalizes an employer and requires payment of attorney’s fees for plaintiffs who successfully sue to enforce the law. The law even targets arbitration agreements that include “opt-out” provisions, which give job applicants and employees the option not to sign an agreement. Under AB 51, even an arbitration agreement that allows an employee to opt out “or take any affirmative action in order to preserve their rights” is still considered unlawful.
Though legislatures consider the passing of this bill a success, there is a strong likelihood that the new law will be invalidated at least to a large extent, if not completely. In fact, in 2018 then-governor Jerry Brown vetoed an almost identical bill as a plain violation of the FAA. Federal law favors private arbitration of disputes, including employment disputes. In recent years the U.S. Supreme Court, and other federal courts, have struck down laws in several states attempting to impede the path to arbitration. AB 51 attempts to avoid this slap-down by stating the obvious within the regulation, by stating that the bill is not “intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.” We’ll let the court be the judge of that, and it in fact will be.
On December 6, 2019, a coalition of parties, led by the U.S. Chamber of Commerce and the California Chamber of Commerce, filed suit in federal district court in California to have AB 51 declared invalid. The lawsuit effectively asserts that AB 51 is preempted by the FAA, with respect to arbitration agreements that are governed by the FAA, and the law should not be enforced when it takes effect on January 1, 2020. We will be following this lawsuit closely and providing updates as the case develops.
COUNSEL TO MANAGEMENT:
Whether AB 51 will be struck down or limited in scope, rests with the federal court for now. Employers who currently utilize employment arbitration agreements regulated by the FAA should sleep easy knowing these agreements are lawful and any state law that attempts to interfere with these rights is contrary on its face to FAA. If your arbitration agreement is not governed by the FAA or you desire a more conservative approach to this over-reach of the California Legislatures, contact the employment law experts at the Saqui Law Group, a division of Dowling Aaron Incorporated.