Battle Continues Over Employer-Required Arbitration Agreements

Employment arbitration, preserved and promoted by the Federal Arbitration Act (FAA), is often used as a contractual alternative to court actions.

California has a long history of unsuccessful attempts to limit mandatory employment arbitration agreements despite the Supreme Court’s strong confirmations that the FAA permits such “take it or leave it” conditions on hiring.

AB 51, enacting Labor Code 432.6 (effective January 1, 2020), was the latest  effort, prohibiting mandatory employment arbitration agreements for discrimination, harassment or retaliation claims under the California Fair Employment and Housing Act (FEHA) or claims under the California Labor Code.

Business organizations responded quickly, on January 31, 2020, winning a federal court injunction against AB 51 enforcement.

A 9^th Circuit three-judge appellate panel has now invalidated that injunction, restoring AB 51’s requirement that employees must consent to workplace arbitration agreements.

That appeals court ruling contains a twist, concluding that while the FAA protects an employer from criminal and civil penalties for entering a mandatory agreement with employees, that law does not shield that employer from such penalties for requesting a worker to enter that agreement.

This decision may not be the final word.  In dissent, Judge Sandra Ikuta, foreseeing further review as high as the Supreme Court, observed: “Like a classic clown bop bag, no matter how many times California is smacked down for violating the . . . FAA, the state bounces back with even more creative methods to sidestep the FAA.”

Take Aways:  Employers should:

1. Consider if requiring post-January 1, 2020 arbitration agreements is worth the risk while this law remains in effect.  If a current or prospective employee refuses to sign such an agreement, the state has grounds for seeking civil or criminal penalties.

2. Consider avoiding such risk by proposing only voluntary arbitration agreements with ample time and space for applicants and workers to consider the decision free of pressure or coercion;

3. Review any arbitration agreements signed after December 31, 2019 to ensure they are not coercive, as regardless of AB 51, coercion is a ground to challenge any contract;

4. Consult a management-side employment attorney for the best advice on how to proceed.

For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Good Workplace Policy is Boss – Our Template Handbook & Forms for 2021 (May 28, 2021)
• What’s New in 2020: California Prohibits Mandatory Employee Arbitration Agreements (December 18, 2019)
• The Need for Written Employment Agreements –Well-Drafted Contracts Eliminate Uncertainty and Ambiguity (March 30, 2018)

Helena Kobrin
September 24, 2021