Employers:  Changes Coming to California Arbitration Agreements

Posted: October 23, 2019 | News

     Earlier this month, Governor Newsom signed Assembly Bill 51 ("AB 51"), which prohibits employers from requiring applicants and employees to arbitrate as a condition of employment, continued employment, or the receipt of an employment-related benefit.  These new restrictions are codified at Labor Code section 432.6, and apply to all contracts for employment entered into, modified, or extended on or after January 1, 2020.

     AB 51 states that an employer shall not threaten, retaliate, discriminate against, or terminate any applicant or employee because of his/her refusal to consent to mandatory arbitration.   Additionally, AB 51 prohibits employers from requiring employees to arbitrate even if the agreement to arbitrate contains an "opt out" provision.  Employers, therefore, will no longer be permitted to implement a blanket mandatory arbitration policy.      

     Employees will have a private right of action to enforce AB 51 and may file a lawsuit against the employer to seek injunctive relief to stop the enforcement of an arbitration agreement that violates AB 51.  Successful employees may recover damages and attorney's fees.  
     The validity of AB 51 is likely to be challenged because it appears to conflict with the Federal Arbitration Act ("FAA").  The FAA preempts all state laws that explicitly or covertly discriminate against arbitration agreements as compared to other contracts.  Nearly identical iterations of AB 51 have been vetoed in years past by Governor Brown based upon his belief that the bills "plainly violate[d] federal law."  However, until the apparent conflict between AB 51 and the FAA is resolved, employers should exercise caution in the use of arbitration agreements.    

Employer Action Items

•    Contact employment counsel to discuss the content of your arbitration agreement to ensure compliance with AB 51.
•    Ensure arbitration agreements include language clarifying that applicants and employees acknowledge signing the agreements voluntarily and not as a condition of employment or an employment benefit.  
•    When distributing an arbitration agreement, avoid giving applicants and employees the impression that signing the arbitration agreement is a condition of employment.


Written by Colleen M. McCarthy, Esq. & Jacob P. Menicucci, Esq.  

Colleen M. McCarthy

Colleen M. McCarthy, Esq. is a Partner and chairs the Firm’s Employment Practices Group. She has dedicated her practice to representing and protecting employers, with a particular emphasis on risk mitigation through preventative counseling and sound practical advice. For 15 years, Ms. McCarthy has counseled employers about the complicated employment laws that impact their businesses to ensure that they are in compliance, and to reduce the chance of costly litigation. Ms. McCarthy may be reached by phone at (949) 608-6900 or email cmccarthy@ferruzzo.com