Gov. Brown Vetoes Ban on Mandatory Arbitration in Employment Contracts, Kentucky Supreme Court Goes Other Way

The California General Assembly sent AB 3080 to Governor Brown for his signature, which would have prohibited employers from requiring mandatory arbitration agreements with respect to their employees. However, Governor Brown vetoed the bill on September 30, 2018 and, as such, AB 3080 did not become law. See report on AB 3080 here.

In his veto message, Governor Brown indicated that he felt the proposed legislation ran counter to recent US Supreme Court precedent. For example, last year, in Epic Systems Corp. v. Lewis, 137 S.Ct. 809 (2017), the US Supreme court held that the Federal Arbitration Act preempted any efforts by state legislatures and various state supreme courts to weaken arbitration provisions. In that case, the Court upheld the arbitration agreements and the embedded waivers of class action lawsuits in employment agreements. See Governor Brown’s veto statement here.

While Governor Brown was considering his veto decision, the Kentucky Supreme Court went the other way and upheld a 1994 Kentucky statute that prohibited mandatory arbitration in employment agreements. See Northern Kentucky Area Devel. Dist.. v. Snyder, Case No. 2017-SC-000277-DG (Kentucky Supreme Court September 27, 2018).

The statute at issue (Kent. Rev. Statute 336.700) stated the following:

“Notwithstanding any provision of the Kentucky Revised Statutes to the contrary, no employer shall require as a condition or precondition of employment that any employee or person seeking employment waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled under any provision of the Kentucky Revised Statutes or any federal law.”

The Kentucky Supreme Court held that this statute was not in violation of US Supreme Court precedents like Epic Systems OR preempted by the Federal Arbitration Act. The court gave several reasons:

• Statute did not “evidence hostility” to arbitration agreements in general
• Statute was about employment agreements, not arbitration agreements
• Statute simply prohibited employers from making arbitration a condition of employment
• Statute did not actually prevent arbitration in employment agreements; rather prevented hiring, firing, and promoting from being conditioned on agreeing to arbitration

Without question, the Snyder decision will continue the debate about whether mandatory arbitration agreements with respect to employment can be banned. Mandatory arbitration has the practical effect of limiting lawsuits and litigation. Some have argued that Governor Brown vetoed AB 3080 for this precise reason — that he did not want to reopen the flood gates to massive amounts of new litigation against employers by their employees.

However, arbitration remains a “hot button” issue for advocates of employee rights. It would not be surprising to see California legislators look closely at the Kentucky statute and enact something similar in the next legislative session.

Contact San Diego Corporate Law

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.

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