California Governor Gavin Newsom recently signed into law Assembly Bill 51 (the "Employment Arbitration Law"), which prohibits employers from requiring that job applicants or existing employees agree to arbitrate claims brought under California's Fair Employment and Housing Act or Labor Code as a condition of obtaining or continuing employment. This means that an employer cannot force an applicant for employment or current employee to consent to arbitrate employment claims, and an employer may be subject to liability if circumstances suggest that a current or prospective employee's reluctance to agree to mandatory arbitration as a condition of employment led to an adverse employment decision. The Employment Arbitration Law applies to employment contracts entered into, modified, or extended on or after January 1, 2020. If an employer violates the Employment Arbitration Law, it may be liable for punitive damages and the employee's attorneys' fees, and the employer will also be guilty of a misdemeanor.
Notably, it is likely that the Employment Arbitration Law will be challenged in court on the grounds that it is preempted by the Federal Arbitration Act (the "FAA"), which was enacted by Congress to ensure the validity and enforcement of arbitration agreements. If such a challenge is successful, the Employment Arbitration Law could be rendered unenforceable in whole or in part. While the future validity of the Employment Arbitration Law is unclear, for now, California employers should prepare to comply with this new law.
California employers should therefore adjust their hiring and other employment practices in order to mitigate their litigation risk. In order to avoid potential liability, employers should consider modifying or deleting any mandatory arbitration provisions contained in their form employment agreements and employee manuals with assistance from counsel. Additionally, employers should seek legal advice prior to taking adverse employment actions against applicants for employment or employees who refuse to sign documents that contain mandatory arbitration provisions.
Pryor Cashman LLP's Labor & Employment Department is well positioned to help employers navigate this recent and significant change in California's employment law. Please feel free to contact us with any questions or for guidance.
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