California Ban on Mandatory Employment Arbitration Agreements

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California Ban on Mandatory Employment Arbitration Agreements

California Employers previously could require that employees sign and abide by mandatory arbitration agreements in pursuing any employment claims – until now.  The California legislature enacted Assembly Bill 51, prohibiting mandatory arbitration agreements for any claims under the California Fair Employment and Housing Act (“FEHA”); but enforcement of the law was stayed until now.  The law, AB 51:

  •      •Prohibits mandatory arbitration agreements for any FEHA claims or the California Labor Code as a condition of employment or receipt of any employment-related benefit. Cal. Lab. Code § 432.6.
  •      •Imposes criminal and civil penalties for employers that violate its provisions — including “imprisonment in a county jail, not exceeding six months, or … a fine not exceeding one thousand dollars ($1,000), or both,” as well as injunctive relief and attorney’s fees to a prevailing plaintiff for enforcing his/her rights. Cal. Lab. Code §§ 23, 432.6, 433.
  •      •Protects against retaliation and discrimination for those employees who refuse to consent to a mandatory arbitration agreement or who file a claim to enforce AB 51. Cal. Lab. Code § 432.6.; Cal. Gov. Code § 12953.
  •      •Applies to agreements entered into or modified on or after January 1, 2020. Cal. Lab. Code § 432.6.
  •      •Does not apply to arbitration agreements otherwise enforceable under the FAA. Cal. Lab. Code § 432.6.


The U.S. and California Chambers of Commerce and other national and state organizations filed lawsuits in an attempt to block AB 51, asserting that it is preempted by the Federal Arbitration Act (“FAA”) and a U.S. District Court issued an injunction to keep the new law from going into effect.  In the case of Chamber of Commerce of the U.S. v Bonta decided last week, the judge’s ruling upheld AB 51’s prohibitions and vacated the prior injunction keeping AB 51 from going into effect.

The ruling emphasized AB 51′s stated intent “to assure that entry into an arbitration agreement by an employer and employee is mutually consensual” is consistent with the congressional intent for the FAA to not preempt state laws requiring “voluntary” arbitration agreements.  But an employee cannot invalidate a signed arbitration agreement solely because of AB 51’s prohibitions (even if signed in violation of AB 51).  That leaves a bit of an odd circumstance. Ab 51’s penalties now will apply to employers where an employee does not actually sign a mandatory arbitration agreement.  Thus, employers are exposed to criminal and civil penalties for conditioning employment or benefits on execution of an arbitration agreement when employees do not sign the agreement, but they are not exposed to such sanctions if an employee does not sign the agreement even though the employer presented it as a mandatory condition of employment.

While this court ruling is not likely the end of challenges to AB 51, for the time being, employers using arbitration agreements will need to ensure that agreements are purely voluntary.  When revising employment agreements, employers should also note that “opt-out” of arbitration provisions do not exempt an employer from AB 51 and will still be considered a “condition of employment.”

Here at Epps & Coulson, LLP we understand that these employment arbitration agreement issues may be confusing. We are available to advise.  Feel free to contact Dawn:

Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is considered advertising under laws of some states.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.

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