California Again Takes Aim at Banning Mandatory Arbitration in Employment Agreements

The California State Assembly recently passed another effort to ban mandatory arbitration agreements in employment contracts. The most recent effort was spearheaded by San Diego’s own Assembly Member Lorena Gonzalez (San Diego, D.). Gonzalez proposed Assembly Bill 51 (“AB 51”) which was passed and awaits Governor Newsom’s signature. See text of AB 51 here. A similar bill was introduced in the last legislative session but was vetoed by then-Governor Jerry Brown.

As with its previous version, AB 51 bans employers from requiring that employees agree to arbitration as a condition of employment. Further, the new law criminalizes any effort to make workers or applicants waive rights to bring litigation or suit for alleged violations of the California Fair Employment and Housing Act (“FEHA”). The FEHA is the main California anti-discrimination statute.

When he vetoed the version of AB 51 last year, Governor Brown stated that the proposed law ran up against US Supreme Court precedent that held state laws were preempted by the Federal Arbitration Act. California legislators and judges have been very hostile over the last couple of decades to mandatory arbitration in the employment context. Again and again, the US Supreme Court has had to overturn California statutes and case decisions that have limited, restricted, or banned arbitration in employment contracts. AB 51 is yet another effort and will face a court test if Governor Newsom signs the bill.

Legal lesson: Employers have an understandable reason for wanting to use mandatory arbitration for potential disputes with their employees. Most often, the mandatory arbitration is coupled with a ban on filing class actions. Class actions are hugely expensive to defend and can result in financially devastating judgments. By contrast, arbitrations are less expensive because they are quicker. Arbitrations also have a finality since there are limited grounds for appealing an arbitration decision. That being said, employers should be aware of California’s hostility to mandatory arbitration agreements.

Further, if your business is thinking of adding mandatory arbitration and class action waiver, now may be the time to have your employee agree. AB 51 specifically exempts agreements entered into before January 1, 2020. Contact an experienced San Diego corporate attorney to review your employment documents for compliance.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.

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