Earlier this year, we wrote about a proposed bill in California, AB 51, which would prevent employers from requiring their employees to bring all employment-related claims, including discrimination, harassment, retaliation, and wage and hour claims, in arbitration instead of state or federal court.  Earlier this month, Governor Newsom signed AB 51 into law.

The bill adds a new Section 432.6 to the California Labor Code and Section 12953 to California Government Code (referencing 432.6).  These sections prohibit any person from requiring any applicant for employment or any employee to waive any right, forum, or procedure (via an arbitration agreement or any other method) for a violation of the California Fair Employment and Housing Act (FEHA) or the Labor Code as a condition of employment, continued employment, or the receipt of any employment-related benefit.  While the new law does not prohibit completely voluntary waivers, it specifically states that an agreement that requires an employee to opt out of such a waiver or take any other affirmative action to preserve their rights to a forum is considered a condition of employment, and is therefore unlawful under the statute.

The new law also prohibits employers from threatening, retaliating against, discriminating against, or terminating an employee or refusing to hire a prospective employee who refuses to sign an arbitration agreement.

Violations of the new law constitute a crime, as well as an unlawful employment practice under the FEHA.  The law also allows for injunctive relief and attorneys’ fees to a prevailing plaintiff.

The only exceptions to the new law are:

  1. The law does not apply to a person registered with a self-regulatory organization as defined by the Securities Exchange Action of 1934 (i.e. a stock exchange) or applicable regulations requiring that persons subject to the regulations arbitrate disputes that arise between the person and their employer or any other person;
  2. The law is not intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act;
  3. The law does not apply to post-dispute settlement agreements or negotiated severance agreements;
  4. The law does not apply to contracts for employment entered into, modified, or extended on or after January 1, 2020.

The U.S. Supreme Court has upheld arbitration agreements in the employment context on numerous occasions.  Given the carveout for arbitration agreements “that are otherwise enforceable under the Federal Arbitration Act,” it will be interesting to see if, and to what extent, this law will face judicial scrutiny.  In the meantime, if your employees have signed arbitration agreements or you are considering rolling out arbitration agreements to your employees, it is best to seek advice from employment counsel prior to January 1, 2020.