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Is Your Arbitration Agreement With Your Employees Enforceable?

Stephanie Perkins • Jan 21, 2020

AB 51: What It Is, Why People Are Fighting It, and What It Means for You

Whether you’re a business owner or an employee, you’ve likely heard of California Assembly Bill 51. This bill, approved by the governor October 10, 2019 and deemed effective on January 1, 2020, was written to address the perceived abuse of arbitration agreements in employment contracts. Specifically, AB51 was intended to combat allegations of workplace harassment and assault from being dealt with in private arbitration as opposed to being brought forward into public court proceedings. The concern is this alternative forum, which is confidential and not a matter of public record, allows employers to sweep some of the “ugliness” under the rug, regardless of the outcome.

However, several business groups, including the California Chamber of Commerce, have raised “serious questions” about this measure, both regarding its legality and its effectiveness. So, what does this bill say? And what are the issues being raised? How will they potentially impact you as a business owner or employee?

The Language of The Bill

AB 51 states that “This bill would prohibit a person from requiring 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 (FEHA) or other specific statutes governing employment as a condition of employment, continued employment, or the receipt of any employment-related benefit.”

This bill seeks to ensure that every employee has the full benefit of the rights and procedures established by FEHA and the Labor Code and that no retaliation will be taken against someone for refusing to consent to waiving said rights. AB 51 wants to ensure that employers can no longer unilaterally impose pre-dispute arbitration agreements on employees, and that employees entering into such agreements do so voluntarily. If an employer violates this law, it will now be deemed a misdemeanor, and they could be subject to criminal sanctions.

The bill doesn’t seem to cover any arbitration agreements for claims under statutes other than the FEHA and the Labor Code and excludes mention of Financial Industry Regulatory Authority arbitration agreements. 

What Are the Problems?

According to the U.S. Chamber of Commerce, the California Chamber of Commerce, the National Retail Federation and other groups, AB 51 violates federal law. The specific law in question is the Federal Arbitration Act, which states that “written, pre-dispute arbitration agreements in transactions involving commerce, which require arbitration of controversies between the parties, is valid, irrevocable, and enforceable.” 

The FAA also says that a state cannot pass or enforce laws that interfere with, limit, or discriminate against arbitration. Though the FAA does not cover every type of worker, and specifically excludes “any class of workers engaged in foreign or interstate commerce,” the FAA is still a strong sticking point for opponents of the bill. In fact, a very similar version of this bill was struck down by then-Governor Jerry Brown in 2018, expressly because he believed it violated the FAA.

Business organizations believe that AB 51 would cause significant costs to employers due to litigation and the expense of delayed dispute resolutions. They argue that arbitration is efficient, fair, and affordable. They have expressed concerns regarding employers being exposed to criminal liability because of arbitration agreements and are concerned about the potential complete elimination of settlement agreements. 

However, labor advocates say that arbitration agreements can present difficulties to employees, who may have trouble finding a lawyer to represent them. They argue that mandatory arbitration agreements are too often used to silence valid claims of workplace harassment and employee discrimination.

Currently, over half of California’s employers have mandatory arbitration procedures, and nearly 30% include class-action waivers in those procedures, denying employees the right to address rights issues through collective legal action. Mandatory arbitration agreements also disproportionately impact low-wage workplaces and jobs and industries with a high concentration of black and female employees. 

What Does This Mean for You?

Currently, AB 51 is on hold. U.S. District Judge Kimberly Mueller put a temporary restraining order in place halting the enforcement of the bill and will be deciding whether the business groups’ motion for a preliminary injunction is valid. If the injunction is granted, the bill’s implementation could be delayed indefinitely.

However, any arbitration agreements entered into before January 1st, 2020 are still valid, and the law does not prevent employers from offering arbitration as a method of settling disputes. Currently, there is no change to how business owners can use and require arbitration agreements as a condition of employment.

However, it is strongly recommended that employers keep a close eye on the proceedings of AB 51 as they unfold. You should also consult with your counsel on your options, including whether you want to change the language of your arbitration agreement, should you have one. Some language changes could include stating that your agreement is solely governed by the FAA or excluding charges that employees may file with the Equal Employment Opportunity Commission (EEOC), the California Labor Commissioner, the Department of Labor (DOL), the Department of Fair Employment and Housing (DFEH) or the National Labor Relations Board (NLRB).

For advice on what you should do with regard to this bill, contact us to set up an appointment. We can work with you to ensure that whether the bill is challenged or enforced, you will be in compliance with all state and federal employment laws.
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This article is legal information and should not be seen as legal advice. You should consult with an attorney before you rely on this information. This article does not create an attorney-client relationship.
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