Employment Arbitration Agreements in California: A Soon-To-Be Relic?

October 31, 2019 | By Charles L. Shute Jr.

Often perceived – rightfully or not – as an overly employer-friendly forum, mandatory arbitration agreements between employers and employees have been the bane of the plaintiff’s bar’s existence for years. However, there has been a recent torrent of activity in the arbitration arena, with various states and private companies all competing with each other to demonstrate their progressive bona fides in the workplace and solidarity with the #MeToo movement. In one prominent example, we previously covered New Jersey’s recent bill that arguably prohibits arbitration agreements in any employment contracts – a law that has not yet been challenged in the courts. Washington, Maryland, and Vermont have all passed or attempted to pass similar laws. 

Not to be outdone by its neighbor, New York passed a budget for 2019 which purported to void any agreements that required the submission of sexual harassment claims to mandatory binding arbitration.  This was challenged in the courts and, as expected, struck down by the Southern District of New York on grounds that the law was preempted by the Federal Arbitration Act (“FAA”).

Though legislative efforts to eliminate arbitration agreements from the workplace have been met with mixed results, the private sector has perhaps seen the writing on the wall and is beginning to recognize that public perception is a much stronger force than federal preemption. As previously covered here, numerous large employers, including Facebook, Google, Uber, and Microsoft, have voluntarily ended forced arbitration agreements, at least with respect to claims of sexual harassment. That being said, the private sector has, for the most part, been careful to remove arbitration agreements only with respect to the current day’s outrage-generating issue. And, at least up until last week, no state has had the temerity to gut an employer’s ability to require arbitration agreements as a condition of employment.   

Yes, that’s California’s entrance music you’re hearing. On October 10, 2019, Governor Gavin Newsome signed Assembly Bill 51 into law. The law prohibits forcing employees or applicants to sign arbitration agreements waiving their right to bring allegations of violations of the Labor Code and the Fair Employment and Housing Act in court. The law essentially covers any legal dispute that could arise in the workplace, be it discrimination claims, harassment claims, retaliation claims, or wage and hour violations. The bill also prohibits retaliation against employees or applicants who refuse to sign any such agreement. Notably, this law does not affect existing arbitration agreements (likely to an obvious constitutional problem), and only applies to people hired after January 1, 2020. In case there was any doubt as to how seriously California takes the issue, violating the new law is a misdemeanor. 

If you feel like you’ve heard this story from California before, it’s because you have. Former Governor Jerry Brown vetoed a similar bill in 2018 which would have prohibited employers from requiring employees and independent contractors to sign arbitration or nondisclosure agreement as a condition of their employment or continued employment. That bill would have also prohibited retaliation against employees who refused to sign such agreements. However, Governor Brown vetoed the bill because he believed it violated the FAA.  

This most recent bill is purportedly different from the rest because it does not invalidate any agreements that an employee may actually sign, it merely makes the agreements optional and prohibits the employer from doing anything about an employee’s refusal to sign, such as withdrawing a job offer or terminating an existing employee. Given that this leaves the employee with no incentive to sign such an agreement (unless, of course, employers offer additional consideration such as a signing bonus in exchange for executing an arbitration agreement), it remains to be seen whether this latest law is a legitimate workaround to the FAA, or a transparent attempt to avoid federal preemption. Stay tuned…there will be lawsuits. 

About the Authors

Charles L. Shute Jr.

Senior Counsel

Charlie is an attorney in the Labor & Employment Department, focusing his practice on representing management in all aspects of labor and employment law. Charlie views his clients as his partners and,...

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