California Governor Signs Bill Banning Mandatory Arbitration of Employment Claims

Employment Law

On October 10, 2019, Gov. Gavin Newsom signed into law Assembly Bill 51. While styled as a bill pertaining to enforcement of employment discrimination under the Fair Employment and Housing Act (FEHA), the bill sweeps far more broadly. Specifically, the bill outlaws the use of mandatory arbitration agreements in employment claims related to FEHA or violations of the Labor Code. The bill invalidates all agreements requiring the waiver of any right to forum or procedure if entered into as a condition of employment, continued employment or the receipt of any employment-related benefit. The provision does not apply to FINRA-registered brokers, or others required to be registered with a self-regulatory organization under the Securities Exchange Act. Because this bill applies prospectively to agreements entered into on or after January 1, 2020, any existing arbitration agreements—or ones rolled out prior to the effective date—would be enforceable.

Despite its breadth, it is unclear whether this bill will have any effect at all. The bill expressly provides that it is not intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act (FAA). Under the FAA, it appears that the bill itself is preempted under well-established Supreme Court precedent. Specifically, the Court has held that the FAA preempts state laws that prohibit arbitration of particular types of claims. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, at 341 (“When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”) (citing Preston v. Ferrer, 552 U. S. 346, 353 (2008)). AB 51 specifically exempts employment discrimination and labor code claims from arbitration. Accordingly, it is likely preempted. Indeed, a similar New York law that prohibited mandatory arbitration provisions in the context of sexual harassment claims was held preempted by the FAA. See Latif v. Morgan Stanley & Co. LLC, No. 18CV11528 (DLC), 2019 WL 2610985, at *4 (S.D.N.Y. June 26, 2019).

This bill comes on the heels of the passage of the Forced Arbitration Injustice Repeal Act in the U.S. House of Representatives, which ended mandatory arbitration in employment, consumer and civil rights cases. That bill, HR-1423, has not been taken up by the Republican-controlled Senate and may not move beyond the House. If the political winds change after the 2020 election, however, HR-1423 or similar legislation may be more likely to survive.

Although there is a movement to prohibit mandatory arbitration agreements in employment, as long as the FAA is the law of the land, efforts like AB 51 and its New York equivalent may have limited practical effect.

The text of the bill can be read here.

Why it matters: The viability of AB 51 remains to be seen. Employers should keep apprised of developments in this area and likely challenges to its enforceability. In the meantime, this is another movement in the trend toward attacking mandatory arbitration agreements in the employment context. Employers should take this opportunity to revisit the concept of mandatory arbitration agreements. Companies should consider whether, how and to what extent they are used in their workplaces, and plan for a future in which they may be barred.




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