New California Law Prohibits Mandatory Employment Arbitration Agreements

Arbitration Agreement

On October 10, 2019,  Governor Gavin Newsom signed Assembly Bill 51 (“AB 51”) creating a new Labor Code provision (section 432.6), effectively banning employers from using mandatory arbitration agreements beginning on January 1, 2020.  The new law makes it a criminal misdemeanor for an employer to require job applicants or workers to waive their right to sue employers under the Labor Code and the Fair Employment and Housing Act (“FEHA”) as a condition of employment.  Additionally, the new law bans arbitration agreements in which employees must take affirmative measures to avoid arbitration, such as opting out.  Employers are furthermore prohibited from retaliating against employees who refuse to agree to arbitration. 

Reaction to the passage of AB 51 is mixed.  On the one hand, mandatory arbitration clauses have come under sharp criticism in the past year by proponents of the #MeToo movement, who complain that forced arbitration has been used by employers to stop workers from suing them for discrimination, sexual harassment and wage theft.  Critics of mandatory arbitration contend that workers’ voices have been muted because victims of sexual harassment and discrimination on the job have been forced to resolve their complaints through private arbitration, a quasi-judicial process with no jury, no judge, scant government oversight and a diminished ability to recover for their injuries.  Proponents of the new law also assert that ending mandatory arbitration brings hidden injustice to light because many workers who sign arbitration agreements upon hire do not fully understand the agreement.

In contrast, proponents of the arbitration process contend that arbitration is a cost effective and an expeditious alternative to litigation.  Furthermore, although one might not win as great a sum in arbitration as one might in litigation, arbitration is much more likely to yield a financial settlement than going to court.  Additionally, in sensitive cases, an employee might not want to go public with his or her story and thus the privacy of resolving a dispute behind closed doors may be very appealing. 

Mandatory arbitration agreements have become a mainstay in today’s working world.  In fact, as a result of mandatory arbitration agreements nearly half of all workers, who don’t belong to a union, have waived their right to go to trial.  Bill author Assemblywoman Lorena Gonzalez, D-San Diego noted that the new law will impact more than 67 percent of California workplaces.  But unless federal law is also changed, AB 51 will not impact already existing mandatory arbitration agreements.

The California legislature is well aware that a bill prohibiting mandatory arbitration agreements may conflict with the Federal Arbitration Act (FAA) and U.S. Supreme Court case law that allows companies to enforce these agreements.  As a result, employers and employees can expect significant ongoing litigation regarding the scope, constitutionality and enforceability of this new law.

Employers that intend to continue using arbitration agreements after January 1, 2020 will be forced to modify them or run the risk of violating the new law resulting in a misdemeanor.  To ensure your future arbitration agreements are compliant with the new legislation; you should consult with an attorney well versed in California employment law.  If you have any questions about how AB 51 impacts your employee agreements, do not hesitate to contact Danielle G. Eanet of Eanet, PC at (310) 997-4185 or