Many employers, including small businesses and family offices, use standard forms of agreements and offer letters to their employees. These forms often contain clauses that require arbitration in the event of a dispute between the employee and an employer. AB 51 applies to the prohibition of such agreements if employees have claims under the Fair Employment and Housing Act (FEHA) or the California Labor Code. For example, AB 51 would prevent an employer from seeking arbitration of a state discrimination claim or sexual harassment complaint. The U.S. and California Chambers of Commerce, as well as other national and state organizations, have filed lawsuits to block AB 51, claiming it was anticipated by the FAA. On the 30th. In December 2019 (two days before AB 51 was scheduled to go into effect), the U.S. District Court for the Eastern District of California issued an injunction prohibiting the enforcement of AB 51. Ultimately, on January 31, 2020, the District Court issued an injunction on the grounds that AB 51 interferes with the FAA`s objectives and that the FAA expects it to discriminate against arbitration. For a summary of this process history, see troutman Pepper`s related notices to previous customers in this section.
If any part of AB 51 survives further judicial review, employers who apply arbitration agreements must ensure that the agreements are purely voluntary. When reviewing their arbitration agreements, employers should also note that the opt-out provisions do not exempt an arbitration agreement from AB 51 and are still considered a « condition of employment ». Although the court did not invalidate Section 432.6, it ordered Section 433 of the Labor Code and Section 12953 of the Government Code to impose criminal and civil penalties on employers who violate Section 432.6, at least to the extent that they apply to signed arbitration agreements « covered by the FAA. » This raises the question of whether these sections apply in situations where an employee refuses to sign an agreement. The majority opinion on this issue is unclear. As a result, employers seeking to make employment conditional on the enforcement of an arbitration agreement may examine their particular circumstances to determine whether they pose an additional risk as a result of the Ninth District decision. However, in 2019, California lawmakers passed a law prohibiting employers from requiring employees to sign arbitration agreements as a condition of employment. The law was due to come into force on January 1, 2020, but the law was challenged in court and its entry into force was suspended, leaving employers in the dark. Now the 9th circuit has shed light on the situation. In a 2-1 split decision that likely raises more questions than it answers, the Court of Appeals for the Ninth Circuit questioned employers` ability to implement binding arbitration agreements with their employees. In U.S.
Chamber of Commerce v. Bonta, the Ninth District upheld parts of California Labor Code Section 432.6, which prohibits employers from making arbitration agreements a condition of employment and imposing significant criminal and civil penalties for violations. The Ninth District decision states that arbitration agreements signed by the parties remain binding (even if they violate section 432.6), while parties who have refused to sign an arbitration agreement can still seek recourse against the employer under the law. In addition, the Court ruled that employers may also be subject to criminal and civil penalties in such cases. Admittedly, it is confusing. The result is that employers want to review their practices regarding the implementation of employee arbitration agreements, at least until the Ninth District considers whether the case should be heard in the bench or whether the U.S. Supreme Court is evaluating it. California is still actively appealing federal court decisions that blocked AB 51. In December 2020, lawyers from the California Department of Justice appeared before a panel of the Ninth District Court of Appeals, arguing that the Court of Appeals should overturn lower court decisions and let the law go into effect. As of March 2021, the case is still under appeal and California state authorities are still instructed to enforce the ban on binding arbitration agreements. In the meantime, California employers should ensure that their attorneys review the content of workplace arbitration agreements to ensure full compliance with state law.
« If the employer offers the potential employee an arbitration agreement as a condition of employment and the potential employee executes the agreement, the employer cannot be held liable under civil or criminal law. However, if the potential employee refuses to sign, the FAA will not be subject to the employer`s civil and criminal liability under the provisions of AB 51. In other words, the majority believes that if the employer has succeeded in « forcing » employees « against their will » to resort to arbitration… the employer is safe, but if the employer`s efforts fail, the employer is a criminal. The dissent noted that the FAA provides ab 51 because it was « intentionally designed to impose a burden and punish the training of an employer or the attempt to form an arbitration agreement with employees » and thus interferes with the purpose and objectives of the FAA. The disagreement also highlighted this absurd result of the majority decision: « If the employer offers the potential employee an arbitration agreement as a condition of employment and the potential employee performs the contract, the employer cannot be held liable under civil or criminal law. But if the potential employee refuses to sign, the FAA does not prejudge the employer`s civil and criminal liability under the provisions of AB 51. In other words, an employer may be penalized for a simple attempt to get an employee to sign an arbitration agreement, but it will not be punished otherwise if the employee signs the agreement, which is then submitted to the FAA (and therefore anticipated by it). In October 2019, California Governor Gavin Newsom signed Assembly Bill 51 (AB 51).
As amended, AB 51 prohibits employers from requiring applicants and/or employees to sign binding arbitration agreements to settle claims under the California Fair Employment and Housing Act (FEHA) or the state Labor Code. . . .