Governor Signs AB 51, Prohibiting Mandatory Arbitration Agreements for FEHA and Labor Code Claims

Category: Special Bulletins
Date: Oct 17, 2019 09:39 AM

On October 13, 2019, Governor Newson signed Assembly Bill 51 into law, which 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 an impacted applicant/employee 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.  LCW will continue to keep you updated on any developments.

In the meantime, we recommend that schools prepare to comply with AB 51 on January 1, 2020.  In order to comply with this law, schools will have a choice of either halting the practice of requiring employees and applicants to enter into arbitration agreements as a condition of employment altogether, or to modify these arbitration agreements to make clear that state discrimination and Labor Code claims are not subject to mandatory arbitration.  For schools that select the second option, we recommend working closely with legal counsel to have your arbitration agreements modified to comply with AB 51. However, schools that use mandatory arbitration agreements as a condition of employment that contain this carve-out language for state discrimination and Labor Code claims face the possibility of having to litigate a plaintiff’s claims in multiple forums (both state and federal).

It is important to note that schools incorporated as non-profit religious corporations are excluded from the definition of “employer” under the FEHA.   However, these non-profit religious corporations will still need to include carve-out language consistent with AB 51 to the extent they wish to continue requiring employees and applicants to enter into arbitration agreements as a condition of employment.

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