On January 1, 2020, AB 51 was signed into law. It prohibits employers from forcing employees to enter into mandatory arbitration agreements in California.
Many employers throughout California require employees to enter into arbitration agreements as a condition of employment. AB 51 affects any California employee’s new, modified, or extended employment contract.
What Is AB 51?
AB 51 applies to claims related to mandatory arbitration agreements arising under the California Fair Employment and Housing Act and the California Labor Code.
AB 51 provides the following guidelines to employers in California:
- Prohibits employers from conditioning employment, continued employment, or any employment-related benefit on the applicant or employee waiving rights under the Fair Employment and Housing Act (“FEHA”) or the California Labor Code, including the right to proceed in civil court;
- Prohibits employers from engaging in retaliatory behavior against an applicant or employer for refusing to waive employment-related rights; and
- Defines any violations of the practices outlined under AB 51 as unlawful employment practices under FEHA.
In addition to injunctive relief and other remedies available under FEHA, a court may award a prevailing plaintiff their attorney fees in any lawsuit.
Additionally, AB 51 subjects any employer found in violation to criminal sanctions, including the following:
- Imprisonment in county jail not exceeding six months,
- A fine not exceeding $1,000, or
The law applies to all contracts for employment entered into, modified, or extended on or after January 1, 2020. Since AB 51 affects all California employees and job applicants, the bill’s consequences have far-reaching implications for employers.
What Is the California Arbitration Act?
The California Arbitration Act regulates private arbitration in California. In 2000, the California Supreme Court case Armendariz v. Foundation Health authoritatively determined the standards for arbitration agreements in California.
Armendariz deems arbitration agreements unenforceable if the terms are both procedurally unconscionable and substantively unconscionable.
California law defines all mandatory arbitration agreements in California as procedurally unconscionable. However, if the terms of the arbitration agreement are not unfair to the employee, the agreement remains enforceable.
Is Forced Arbitration Legal?
Mandatory arbitration agreements require employees to go through a form of private dispute resolution outside the court system. California employers often force employees to enter into arbitration agreements as a condition of employment.
There are many reasons why employers require mandatory arbitration agreements. Employees may be less likely to win their case in arbitration. Even if they do win, they often receive lower rewards than if they filed a lawsuit.
In many situations, particularly in sexual harassment and discrimination situations, an arbitration clause in a California employment contract silences an employee by preventing them from pursuing their claim in court.
In 2019 a coalition of businesses filed a lawsuit in federal court claiming AB 51 is preempted by the Federal Arbitration Act (“FAA”). In response, the federal court issued a temporary restraining order preventing enforcement AB 51 as to arbitration agreements covered by the FAA.
Therefore, currently, employers may continue to require its employees to sign mandatory arbitration agreements so long as they are covered by the FAA.
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