Major Change to Mandatory Arbitration Agreements

By November 12, 2019 November 15th, 2019 Litigation Tips

Many employers insist that their employees sign mandatory arbitration agreements as a condition of employment.  However, on October 10, 2019, California Governor Gavin Newsom signed a bill into law that will prohibit employers from requiring mandatory arbitration agreements for nearly all types of employment claims.  The bill adds a new Section 432.6 to the California Labor Code prohibiting any person (including employers) from requiring an applicant or employee (as a condition of employment, continued employment, or the receipt of any employment-related benefit) to “waive any right, forum, or procedure” for alleged violations of the Fair Employment and Housing Act (FEHA) and the California Labor Code.  

In light of the sweeping reach of the new law, many anticipate a successful legal challenge on the ground that it is preempted by the Federal Arbitration Act.  This could lead to years of litigation, and ultimately, the issue may need to be resolved by the U.S. Supreme Court.  Given the current uncertainty, employers would be well-advised to consult with experienced employment counsel when considering whether to continue to use mandatory arbitration agreements or whether existing agreements need to be modified.