California Bans Mandatory Arbitration in Employment Contracts

On Behalf of | Oct 1, 2021 | Business Issues, Uncategorized |

In 2019, California looked to be on the verge of prohibiting mandatory arbitration provisions in employment contracts. The law was part of several pieces of legislation responding to #MeToo but, like most laws, would have wider ranging implications. AB 51 was initially meant to come into effect on January 1, 2020.

However, this wasn’t meant to be. The law was challenged, and the US District Court prevented the law from coming into effect. This was based on the argument of the US Chamber of Commerce, which argued the law violated the Federal Arbitration Act (“FAA”).

For the time being the law did not go into effect, but the case was taken up by the Ninth Circuit, which, in a recent 2-1 decision, upheld parts of law, ultimately lifting the stay of enforcement of AB 51. The law can now go into effect.

The two-judge majority in the Ninth Circuit upheld the law “because AB 51 was focused on the conduct of the employer prior to entering into an arbitration agreement.” This pre-agreement conduct of the employer is what the majority reasoned prevented the law from violating the FAA

AB 51’s journey may not be over; however, as it is likely to be appealed to the full Ninth Circuit or to the United States Supreme Court. In the meantime, employers can only proceed with caution and follow the law’s requirements and prohibition of mandatory arbitration provisions in employment contracts.

With the constant changes that can impact a business, an experienced legal team can help navigate a difficult time for businesses, particularly with the ever-changing landscape for companies during the current crisis.