United States: Can't We Just Agree?: California Codifies It's Hostility Towards Arbitration With AB 51.

On October 10, 2019, California Governor Gavin Newsom signed into law Assembly Bill 51 (AB 51) prohibiting mandatory workplace arbitration agreements. AB 51 adds Section 12953 to the Government Code and Section 432.6 to the Labor Code. AB 51 applies to contracts entered into or modified after January 1, 2020.

Specifically, the new law prohibits employers from requiring employees or applicants to waive a right, forum, or procedure for a violation of the California Fair Employment and Housing Act (FEHA) or the Labor Code as a condition of employment, continued employment, or the receipt of any employment-related benefit. Requiring employees to "opt out" of a waiver or take any affirmative action to preserve their rights is deemed a condition of employment, and thus these types of agreements are also prohibited. AB 51 also prohibits employers from threatening, retaliating or discriminating against, or terminating employees or applicants because they refused to waive any right, forum, or procedure.

In addition to injunctive relief and any other remedies available, AB 51 authorizes reasonable attorney's fees to a prevailing plaintiff enforcing their rights under Labor Code Section 432.6. Note that the new law does not apply to post-dispute settlement agreements or negotiated severance agreements.

It remains to be seen whether the new laws created by AB 51 will survive a preemption challenge. Indeed, former Governor Jerry Brown vetoed an almost identical bill (AB 3080) in 2018, noting that the bill would be preempted by the Federal Arbitration Act (FAA). In vetoing the bill, Brown rejected an argument that the FAA only preempts state laws relating to the enforcement of arbitration agreements, pointing out that the FAA preempts state laws related to the formation and validity of such agreements if those laws serve as an obstacle to enforcement.

In light of AB 51, employers should work with counsel to review their arbitration agreements prior to January 1, 2020. Employers may also wish to take advantage of the window of time before the law goes into effect on January 1, 2020 to implement or revise any existing arbitration agreements with employees or applicants.

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