Employers No Longer Able to Require Arbitration Agreements As Condition of Employment

Update Feb. 21, 2023

On Feb. 15, 2023, the Ninth Circuit issued an opinion affirming the District Court’s preliminary injunction on the grounds that AB 51 is preempted by the FAA.  For more on that decision, please see our legal alert on AB 51 here.

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On October 10, 2019, Governor Gavin Newsom signed into law a new bill (AB 51) that will have a substantial impact on the employment litigation landscape in California.

Historically, many employers have required employees to enter into arbitration agreements as a condition of employment. With AB 51 becoming law, effective January 1, 2020, employers will no longer be permitted to require an employee, as a condition of employment, continued employment, or receipt of employment-related benefits, to waive any right, forum, or procedure to pursue a claim under the California Fair Employment and Housing Act (FEHA). Put simply, the new law bans mandatory arbitration agreements for FEHA claims, and prohibits employers from threatening or retaliating against employees for refusing to sign an arbitration agreement if one is proposed to them. The law also makes arbitration agreements for FEHA claims unenforceable unless an employee affirmatively consents. This new law will affect all employment contracts entered into, modified, or extended on or after January 1, 2020.

WHAT EMPLOYERS SHOULD KNOW

Although employers may continue seeking to enter into voluntary arbitration agreements with employees, they must ensure that such efforts are not a prerequisite for employment, continued employment, or receipt of employment-related benefits. It will be essential that efforts to obtain an employee’s agreement to arbitrate claims be made in writing, and that the writing plainly indicates that the employee may choose not to enter into the agreement and that the employee will not be retaliated against in the event he or she chooses not to agree.

To be sure, employers should expect challenges to AB 51 as preempted by the Federal Arbitration Act (“FAA”). Just last year, former California Governor Jerry Brown vetoed AB 3080, a law which included a similar ban on FEHA arbitration waivers because it plainly violates federal law. Lawsuits challenging AB 51 will surely arise.

Please contact Payne & Fears if you have any questions.