AB 51 - Prohibits Employers From Requiring Arbitration Of FEHA Or Labor Code Claims As Condition Of Employment

Category: Private Education
Date: Nov 11, 2019 10:51 AM

AB 51 prohibits employers, starting January 1, 2020, from requiring any applicant or employee to submit any claims under the California Labor Code or the California Fair Employment and Housing Act (FEHA) to mandatory arbitration, as a condition of employment, continued employment, or the receipt of any employment-related benefit. 

AB 51 adds the new Section 432.6 to the Labor Code, which provides that:

“A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require 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 (Part 2.8 (commencing with Section 12900) of Division 3 of Title 2 of the Government Code) or this code, including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation.”

AB 51 also prohibits employers from using voluntary opt-out clauses in connection with these arbitration agreements.  AB 51 states any employment arbitration agreement that requires an employee to affirmatively opt out of the agreement in order to preserve their rights would be deemed a “condition of employment.”

In addition, AB 51 prohibits an employer from threatening, retaliating, discriminating against, or terminating employees or applicants because they refused to waive any such right, forum, or procedure.  Violation of Section 432.6 is an unlawful employment practice under FEHA, which means that violations can give rise to an independent cause of action under FEHA.  A court may award a prevailing plaintiff injunctive relief and any other remedies available in addition to reasonable attorney’s fees.

There are limited exceptions to this new law, the most relevant being that this new law does not apply to post dispute settlement agreements or negotiated severance agreements.  In addition, existing mandatory employment arbitration agreements in effect prior to January 1, 2020 are not impacted.  Rather, these new restrictions will apply only to contracts for employment entered into, modified, or extended on or after January 1, 2020.

While this new law indicates that it is not intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act, it is not entirely clear what that means.  We anticipate that there will be litigation regarding whether AB 51 is preempted by the Federal Arbitration Act.  Governor Brown vetoed similar legislation last year and cited that the legislation violated federal law.  While AB 51 may be preempted by the Federal Arbitration Act, failure to comply with AB 51’s requirements could lead to costly litigation for schools, and it could take several years for any challenge to AB 51 to work itself through the courts. 

In the meantime, we recommend that schools prepare to comply with AB 51 on January 1, 2020.    We believe the safer course of action is to discontinue the use of employment arbitration agreements.  One reason is that potential legal disputes over the enforceability of such arbitration agreements could take years to litigate, and it is uncertain what the outcome would be.  In addition, there may be negative public relations repercussions as well as insurance coverage issues resulting from the continued use of employment arbitration agreements.  However, if Schools want to continue using mandatory arbitration agreements, they should consult with legal counsel about how to increase the likelihood of enforceability, for example, by including appropriate carve out language to make it clear that state discrimination and Labor Code claims are not subject to mandatory arbitration. We do not recommend this option, though, since schools that use arbitration agreements that contain this carve out language face the costly and burdensome possibility of having to litigate a plaintiff’s claims in multiple forums, and receiving inconsistent decisions.  For schools that would like to continue using mandatory arbitration agreements, we recommend contacting the school’s insurance carrier to ask if they have any recommendations or restrictions in light of AB 51.

We note that nothing in AB 51 affects schools’ ability to continue including arbitration provisions in enrollment agreements. 

(AB 51 adds Section 12953 to the Government Code and adds Section 432.6 to the Labor Code.)

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