Once again, California has defied the US Supreme Court and has banned employment-related mandatory arbitration. Further, the new act, Assembly Bill 51 (“AB 51”), makes it a misdemeanor crime for an employer to attempt to get employees to sign a mandatory arbitration agreement that is banned by AB 51. See text of AB 51 here. AB 51 makes it unlawful for employers to require employees to sign mandatory arbitration agreements as a condition of being employed or continuing their employment. Retaliation for refusing to sign an arbitration agreement is also prohibited. AB 51 was authored and navigated through the Assembly by Assembly Member Lorena Gonzalez (San Diego, D.). On October 10, 2019, Governor Newsom signed the bill into law. See news report here.

Similar bills have been passed by the California State Assembly in recent years, but they have been vetoed by previous Governors. For example, in 2018, Governor Brown vetoed a nearly-identical bill citing the fact that the bill was in contravention of US Supreme Court precedent. There is a statute called the Federal Arbitration Act (“FAA”) which, according to the courts, expresses Congress’ strong belief and faith in the usefulness and necessity of arbitration. The US Supreme Court has said in several cases that the FAA preempts any state law that put limits on the power of individuals to make contractual agreements with respect to arbitration. The US Supreme Court has repeatedly struck down California laws and cases in which the freedom to agree to arbitrate has been restricted. The most recent case was Epic Systems Corp. v. Lewis in 2017. Very likely, AB 51 is also preempted by the FAA. However, the sponsors of AB 51 pushed for passage and Governor Newsom has signed it.

This puts San Diego and California employers in a bind. The law is likely to be struck down by the Supreme Court in Washington, DC. Here at home in the Golden State, the law takes effect on January 1, 2020, and comes with potential criminal penalties. That is a large risk for any business owner and for anyone working in a human resources department.

So, what is an employer to do? First, if you are thinking of requiring mandatory arbitration of employee-related issues, consult with an experienced San Diego corporate attorney about compliance.

The next step is to wait and see what happens. Small to medium businesses probably should wait for larger business to bring suit or wait for further developments from the California and federal courts. One reason that pro-worker legislators in Sacramento want to ban mandatory arbitration for employees is that arbitration is often significantly better for employers. Generally, arbitration cases have these advantages for employers:

  • Easier to defend with less discovery and “motion practice”
  • Less expensive to defend
  • Quicker (which is one reason arbitrations are less expensive)
  • Tend to settle more quickly
  • Tend to settle for less money
  • Are generally final when the arbitration is finished — this eliminates years of appeals and re-trials; finality is important even if the employer loses
  • Verdicts are generally more reasoned not fueled by emotionally impassioned juries
  • More confidential — the parties can publicize arbitrations if they want, but the proceedings themselves are private and generally media is not allowed to be in the hearing room
  • Requiring arbitration allows employers to ban class actions which is also a significant cost savings

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.

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