Mandatory arbitration agreements are no longer lawful under Assembly Bill (“AB”) 51. Effective January 1, 2020, AB 51 prohibits California employers from requiring job applicants and employees to arbitrate state-law claims relating to discrimination and claims under the Labor Code. Specifically, the new law only applies to mandatory employment arbitration agreements for claims arising under the Fair Employment and Housing Act (“FEHA”) and the California Labor Code. Optional arbitration agreements are permissible under the law.

The new law also prohibits employers from retaliating against applicants or employees who refuse to enter into arbitration agreements, such as by refusing to hire an applicant or terminating an employee for refusing to consent to the arbitration agreement. Likewise, requiring an employee to opt out of a waiver or take any affirmative action to preserve their rights is considered mandatory and therefore impermissible under the law.

AB 51 applies only to arbitration agreements “entered into, modified, or extended on or after January 1, 2020.” However, AB 51 does not explain what it means for an agreement to be “extended” after January 1, 2020. Thus, it is possible that employers who enforce an arbitration agreement entered into before the new year are prohibited from doing so. The law is also inapplicable to arbitration agreements contained in settlement and severance agreements.

Remarkably, AB 51 goes so far as to criminalize any such violations. Violating this new law will be deemed a misdemeanor and an employer could be subject to criminal sanctions. An employee may also seek injunctive relief to enforce AB 51 and be awarded reasonable attorneys’ fees to do so. 

It is likely that AB 51 will be challenged. The Supreme Court and lower federal courts have ruled that the Federal Arbitration Act (“FAA”) preempts state attempts to prohibit arbitration agreements. In the wake of the #MeToo Era, there have been a number of states passing legislation prohibiting arbitration of sexual harassment claims, which courts have struck down. Similarly, former Governor Jerry Brown vetoed legislative attempts to curb employers’ use of mandatory arbitration agreements on the ground that they were preempted by federal law.

We encourage employers using mandatory arbitration agreements to consult with their legal counsel prior to January 1, 2020. Employers have a number of options available, such as making their arbitration agreements optional, and revising the agreements to exclude non-arbitrable claims. Since the law could be challenged prior to January 1, 2020, we also recommend keeping an eye on legal developments for updates. 

Author: Caitie Emmett, Associate.

The Maier Law Group helps companies ensure that their policies and practices comply with the relevant workplace regulations.  Please contact us at info@maierlawgroup.com for more information.

This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.