For many employers and employees, arbitration is a quicker and less costly means of resolving employment-related disputes. As a result, it has become standard practice for many employers to require as a condition of employment that employees agree to arbitrate employment-related claims. Mandatory arbitration clauses are routinely found in employment agreements or given to employees as separate employment policies at the time of hire or during their employment.

This practice, however, may soon be limited in California thanks to California legislators. On August 24, 2015, the California State Senate passed Assembly Bill 465 (“AB 465”) which acts to prohibit employers from requiring employees to arbitrate disputes as a condition of employment.  AB 465 was first introduced into legislation in February 2015 by Assemblyman Roger Hernandez.  Titled “contracts against public policy,” the bill proposes that no person may require another person to agree to waive any legal right, penalty, forum, or procedure for employment law violations as a condition of employment or continued employment. It also expressly applies to private arbitration agreements. This means that if AB 465 becomes law, California employers may no longer condition employment on the signing of mandatory arbitration provisions that waive an employee’s right to bring civil suits alleging discrimination, wage and hour, and other workplace claims in order to obtain a job or remain employed.

AB 465 also prohibits a person from threatening, retaliating, or discriminating against another person for refusing to waive any legal right, penalty, remedy, forum, or procedure. If passed, this would mean employers could not terminate an employee or rescind an employment offer if the person does not agree to arbitrate labor disputes. An individual who chooses to bring a claim under this bill would be entitled to injunctive relief, reasonable attorney’s fees, and other available remedies.

Under the proposed law, there are two narrow methods for employers to obtain an enforceable arbitration agreement. First, if employers want employees to waive these rights, the waiver must be knowing, voluntary, in writing, and not made as a condition of employment. Second, if the employee is individually represented by legal counsel in negotiating the terms of an arbitration agreement, their employment could be conditioned  on the signing of an arbitration agreement.  Although this exception is meant to allow certain parties to enter into arbitration agreements, it is doubtful that employees in non-executive positions would have the desire or means to retain counsel for negotiation purposes.

If AB 465 becomes law, employers big and small may face an increase in employment litigation. AB 465 risks not only burdening employers with civil suits that could easily be resolved through arbitration, but also risks increasing the case load of California courts which are already overburdened. In addition, AB 465 would apply to class action waivers as well, thereby affecting one of the ways employers mitigate the risk of potential class action lawsuits.

AB 465 may face constitutional challenges. For example, there will be strong arguments that AB 465 is preempted by the Federal Arbitration Act (“FAA”). The bill runs counter to many California and United States Supreme Court decisions, such as AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), and Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000), which hold that any state law that interferes with the FAA is preempted.

Given that the California State Senate has recently advanced the bill, employers should closely watch AB 465, which may require employers in California to change mandatory arbitration policies. If approved, the law would affect arbitration agreements entered into on or after January 1, 2016.