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2020 Legislative Update re Mandatory Arbitration Clauses in California Employment Agreements

On October 10, 2019, Governor Gavin Newsom signed AB51 into law, which legislation prohibits (and attempts to criminalize) an employer that requires an applicant or employee to arbitrate California Fair Employment and Housing Act (FEHA) or Labor Code claims as a condition of employment.  This new law was scheduled to take effect on January 1, 2020, codified as Section 432.6 of the California Labor Code.

Before the law became operative, however, it was enjoined by the United States District Court for the Eastern District of California in Chamber of Commerce of the United States of America v. Xavier Becerra, 2:19-cv-02456-KJM-DB (E.D. Cal., filed Dec. 9, 2019) based on a perceived conflict with the Federal Arbitration Act (FAA).  On January 31, 2020, the Court found that AB51 is preempted by the FAA and preliminarily enjoined the State from enforcing (1) the California Labor Code provisions that sought to preclude employers from requiring an arbitration agreement from an applicant or employee, or refusing to hire an applicant or discharging an employee for refusing to consent to an arbitration agreement, and (2) Section 12953 of the California Government Code to the extent that it makes entering into an arbitration agreement covered by the FAA an unlawful employment practice.   Relying upon the Supreme Court decision in Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017), which held that the FAA preempts any state law that facially discriminates against arbitration or disfavors contracts that feature arbitration agreements, the Becerra court rejected as a distinction without a difference the State’s attempt to distinguish that AB51 was intended to preclude the formation of an arbitration agreement, not its enforcement.

The Becerra injunction of AB51 is an interim ruling that the State may appeal to the Ninth Circuit or choose to litigate to a final judgment in the litigation.  Although employers can continue to require arbitration agreements in their employment agreements for now, it is recommended that they consult with counsel to ensure their agreements are governed by the FAA.

For additional information about Lubin Olson’s Employment Practice Group, please contact Mia S. Blackler

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