By Karin Cogbill
Late last year, the California Legislature passed Assembly Bill 51, which, among other things, prohibits employers from imposing mandatory arbitration upon employees as a condition of employment with respect to claims arising under the Labor Code and the Fair Employment and Housing Act. The law, enacted largely in response to the #metoo movement, sought to prevent employers from being able to require that newly hired employees resolve disputes in arbitration instead of taking their claims to court.
Almost immediately, several trade associations, including the U.S. Chamber of Commerce, the California Chamber of Commerce, and the National Retail Federation, challenged the enforceability of the law, arguing that it is preempted by the Federal Arbitration Act (FAA). At least initially, those challenges have been successful. On February 7, 2020, U.S. District Judge Kimberly Mueller of the Eastern District of California granted the trade associations’ request for a preliminary injunction that blocks enforcement of AB 51 with respect to arbitration agreements covered by the FAA while the legal challenge winds its way through the court.
We can expect to see a robust opposition to the lawsuit from the State, and ultimately the Court will decide whether the law is enforceable, in whole or in part. This process could take several years, and the Legislature may attempt to achieve its goal by crafting a more specific statute to address the concerns that have prompted the Court to issue the preliminary injunction. For now, however, employers can continue to impose arbitration as a condition of employment and enforce arbitration agreements so long as the agreements comply with the FAA or other applicable law.
What Should Employers Do Now?
- Review existing arbitration agreements and update as necessary- If you have arbitration agreements in place with existing employees, now is the right time to review them and make sure they are enforceable under current law so they can withstand challenge from an employee who may seek to assert a claim in court.
- If you do not have an existing arbitration agreement, weigh the pros and cons of arbitration and decide if it may be beneficial for your organization- If your organization does not have arbitration agreements in place, now is the time to consider whether it may be advantageous to require employees to resolve claims through arbitration. There can be several advantages to arbitration, including the ability to preclude class and collective actions and a lesser risk of an inflated or irrational award. Arbitration is not the right answer for every workforce, however. It can make litigation more expensive in some contexts, as the employer is required to pay the fees charged by the arbitrator.
- Continue to monitor the lawsuit concerning AB 51- Although the ultimate enforceability of AB 51 probably will not be determined for some time, employers should continue to be alert for further developments that could influence the enforceability of arbitration agreements.
If you have any questions about the enforceability of arbitration agreements, or whether arbitration agreements may be beneficial to your organization, or any other issue relating to employment law, please contact one of our attorneys:
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