On August 31, 2015, the California Legislature sent AB-465 to the Governor for his signature or veto. This bill – sponsored by the California Labor Federation and the AFL-CIO – seeks effectively to bar the use of arbitration agreements as a mandatory condition of employment.
If the bill becomes law, it would prohibit employers from requiring employees to waive any legal rights or remedies in order to get or keep their jobs. In other words, an employer could not require current or prospective employees to sign arbitration clauses under the threat that the employees would lose or not get their jobs if they do not sign.
Currently, if an arbitration agreement is required as a condition of employment, this is merely one of many factors considered by courts in deciding whether the agreement is enforceable. The bill, however, would entirely prohibit such a waiver starting January 1, 2016, and would render unenforceable any arbitration agreements required as a condition of employment if entered into on or after that date. This January 1, 2016 date would pose particular problems for employers of seasonal workers who sign new employment agreements with arbitration clauses in each new year or for each new season.
AB-465 is also especially concerning to employers who are subjected to wage and hour class actions because arbitration agreements are so effective in defending against class actions. California courts have only recently come in lock step with federal courts in terms of requiring employees to comply with the terms of their employment agreements containing binding arbitration clauses and in enforcing class action waivers in the agreements.
In that regard, AB-465 would require an employer trying to enforce an arbitration clause to prove it was entered into knowingly and voluntarily by the employee, and not as a required condition of employment. This is problematic because: (1) employees are much less likely to willingly execute waivers of their rights – like arbitration clauses and class action waivers – if they are not required to do so; (2) employers may be forced to provide additional incentive (monetary or otherwise) to obtain such waivers from their employees; and (3) employers would have to alter their policies and practices with regard to their employment handbooks and arbitration agreements in order to better document the processes and incentives used to obtain voluntary, executed waivers. Notably, the bill includes an exclusion from the waiver prohibitions for employees who are represented by legal counsel in negotiating the terms of any waiver of legal rights, but few employees can afford to hire attorneys to negotiate their employment agreements.
Counsel To Management:
If this bill becomes law, it may not hold up to legal scrutiny based upon recent California and federal court rulings because it appears to be preempted by the Federal Arbitration Act. Nevertheless, employers should keep abreast of whether the bill is enacted and be prepared to modify their policies and practices for documenting and obtaining executed arbitration agreements with class action waivers, which will remain an extremely valuable tool in defending employment and wage and hour litigation. The Governor must soon sign or veto AB-465 or it will become law even without his action, and we will provide further update at that time. Please contact The Saqui Law Group with any questions regarding arbitration agreements and their enforceability.