California Bans Most Mandatory Arbitration Agreements

Author: David B. Weisenfeld, XpertHR Legal Editor

On January 10, 2020, a federal district court issued a preliminary injunction staying enforcement California AB 51's prohibition on mandatory employment arbitration agreements until a lawsuit alleging that the law is preempted by the Federal Arbitration Act has been resolved.

October 18, 2019

A new California law will effectively bar employers from entering into mandatory employment arbitration agreements with their employees. The measure, which takes effect January 1, also will prohibit retaliation against any employee who refuses to consent to an arbitration agreement.

AB 51 is the outgrowth of the #MeToo movement's argument that mandatory arbitration clauses effectively silence women who wish to bring workplace sexual harassment claims. But the law goes well beyond sexual harassment in making it illegal for employers to require mandatory arbitration as a condition of employment.

The US Supreme Court has consistently upheld the use of mandatory arbitration clauses in the employment context under the Federal Arbitration Act (FAA). However, AB 51 states that nothing in the California law is intended to strike down a written arbitration agreement that is otherwise enforceable under the FAA.

The new law will not apply to post-dispute settlement agreements or negotiated severance agreements. It also will not apply retroactively to cover employment contracts entered into or extended before January 1, 2020.

But whether this new Golden State law withstands a likely legal challenge is very much in question. Proskauer employment attorney Anthony Oncidi, who heads the labor and employment practice in the firm's Los Angeles office, noted that former California Gov. Jerry Brown twice vetoed a similar law. And in June, a federal judge rejected a New York state ban on mandatory arbitration in Latif v. Morgan Stanley.

"I have every expectation that the same fate awaits AB 51," said Oncidi. "In the meantime, I'm advising employers not to abandon their arbitration programs because it won't be long before AB 51 has been consigned to the ash heap of history."

The California Chamber of Commerce had opposed this law, claiming it would subject employers to criminal charges and create much more litigation.

A few Silicon Valley companies, including Google, had already ended the practice of requiring employees to resolve workplace disputes through arbitration as a condition of employment. Meanwhile, some other employers had taken steps to exclude sexual harassment claims from mandatory arbitration clauses.

Elsewhere, New Jersey passed a broad ban on mandatory arbitration agreements earlier this year, which found that jury trial waivers in employment of any sort violate state public policy and are therefore unenforceable.