California’s AB 51 Restricts Use of Mandatory Arbitration Agreements

With Governor Newsom’s signing of Assembly Bill (AB) 51 on October 10^th, California took a significant step to prohibit the use of mandatory arbitration in employment agreements.

The Bill was enacted for the stated purpose of “ensur[ing] that all persons have the full benefit of the rights, forums, and procedures established in the California Fair Employment and Housing Act and the Labor Code,” without real or feared retaliation for refusing to consent to the waiver of those rights and procedures.

Key provisions of AB 51 include the following:

• A person [employer] shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act or this code.
• An employer shall not threaten, retaliate or discriminate against, or terminate any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation of the California Fair Employment and Housing Act or this code.
• An agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment.

Exceptions to these provisions are made for “a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act” and post dispute settlement agreements or negotiated severance agreements.  Essentially, arbitration agreements are still legal if entered into voluntarily, but cannot be a mandatory condition of employment or receipt of any employment-benefit.  The meaning and interpretation of these exceptions will likely be found in the outcome of future litigation.

AB 51 will go into effect on January 1, 2020, less than three months after its signing into law.  It will not automatically invalidate existing agreements containing mandatory arbitration, but will apply to employment contracts entered into, modified, or extended on or after that date.

However, enforcement of AB 51 may be delayed, or perhaps may never come, as the validity of the Bill will undoubtedly be challenged in the coming months and years.  Federal courts have been generally favorable towards arbitration agreements in the past, previously striking down similar bills on the basis of them being preempted by the Federal Arbitration Act.

The full text of AB 51 can be found here:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB51