California Prohibits Certain Mandatory Arbitration Agreements in Employment

California Prohibits Certain Mandatory Arbitration Agreements in Employment

On October 10, 2019, the governor signed Assembly Bill No. 51 that will prohibit employers from requiring employees to enter agreements that provide for the resolution of claims related to discrimination and wage and hour matters by a private arbitrator. The new law will become effective on January 1, 2020 and will also prohibit employers from threatening, retaliating or discriminating against employees or applicants because they refused to waive any such right, forum, or procedure.

AB 51 contains specific exemptions from its prohibitions, including for “postdispute settlement agreements or negotiated severance agreements,” and for “a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.” Recent decisions of the U. S. Supreme Court have made clear that “state law is preempted to the extent it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA.” On June 26, 2019, the U. S. District Court for the Southern District of New York in Latif v. Morgan Stanley & Co. LLC, held that a similar law in New York was preempted by the FAA and ordered the plaintiff’s sexual harassment claims to arbitration. AB 51 will likely be challenged in the near future, and hopefully employers in California with mandatory arbitration agreements in place will receive a definitive answer from the courts regarding the legality of AB 51 before January 1, 2020.