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California Prohibits Mandatory Employment Arbitration

California Governor Gavin Newsom just signed AB 51 into law, which means that effective January 1, 2020, employers will (purportedly) be prohibited from requiring employees to consent to mandatory arbitration of employment claims. Here is what your business needs to do now:

Provisions and Prohibitions

Employers are now prohibited, pursuant to California Labor Code section 432, from requiring an applicant for employment (or employee) to “waive any right, forum, or procedure” for an alleged violation of FEHA or the Labor Code generally.

The key word here is “requiring” – nothing prohibits an applicant or employee from voluntarily agreeing to arbitrate – provided that “voluntary agreement” does not take the form of an “opt-out” provision. In other words, the employee must willingly agree to participate in the alternate dispute resolution procedure.

Significantly, AB 51 prohibits employers from threatening, retaliating or discriminating against an applicant or employee for refusing to waive any right, forum, or procedure, such as if the applicant refused to consent to arbitrate a potential FEHA claim. In fact, the new law makes a violation of its provisions a misdemeanor.

Exclusions and Potential Challenges

The new law does not apply to post-dispute settlement agreements or negotiated severance agreements. In addition, AB 51 attempts to situate itself as a bill focused on ensuring consent of parties entering into arbitration agreement and it specifically states that it does not override anything “otherwise enforceable under the Federal Arbitration Act.” Given California’s past dust-ups with the FAA, however, we predict a challenge to the new law on this basis.

Employer’s Arbitration To-Do List

In the absence of a successful legal challenge, employers should assume the legislation is valid and will take effect as scheduled. Toward that end, we suggest that:

  • Employers without arbitration agreements should consider implementing them now before AB 51’s January 1, 2020 effective date;
  • Employers implementing arbitration programs after January 1, 2020 should consider revising their arbitration agreements to include specific language that recognizes Labor Code 432.6 and the voluntary nature of the agreement;
  • Employers may want to narrow the scope of arbitration agreements beginning January 1, 2020 to cover only non-FEHA and Labor Code claims such as breach of contract or tort; or
  • Employers may wish to completely suspend the implementation of employment arbitration agreements as of January 1, 2020 until the enforceability of AB 51 is resolved and we can provide more precise guidance.

Mintz’s California employment attorneys are available to discuss whether your organization should continue to include mandatory arbitration agreements in employment contracts, and whether and how existing contracts should be modified.

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Jennifer B. Rubin is a Mintz Member who advises clients on employment issues like wage and hour compliance. Her clients range from start-ups to Fortune 50 companies and business executives in the technology, financial services, publishing, professional services, and health care industries.