Mandatory Arbitration Agreements Declared Illegal for Claims Arising Under the California Fair Employment and Housing Act and the Labor Code

by Michelle R. Ferber and Julie Ann Giammona

Beginning January 1, 2020, California employers will be prohibited from requiring an employee or a job applicant to execute a mandatory arbitration agreement that waives a worker’s right to file a civil action in court for alleged violations of the California Fair Employment and Housing Act (“FEHA”), and/or the Labor Code.  FEHA makes it an unlawful employment practice for employers with five (5) or more employees to discriminate on the basis of certain protected categories, such as race, religion, ethnicity, sex, gender identity, disability, and medical condition, to name a few; for employers with one (1) or more employees, harassment on the basis of the same protected categories is an unlawful employment practice. The Labor Code contains multiple provisions regulating wage and hour law, including meal and rest break rules.

Significantly, AB 51, the legislation signed by the Governor a few short days ago, precludes an employer from utilizing an “opt-out” provision to argue that the arbitration agreement does not amount to a condition of employment, and therefore should not be considered mandatory. Instead, the specific language of AB 51 states:

“ . . . . [A]n agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment.” 

Violating the new statute (which will be codified as Labor Code Section 432.6) is deemed a violation of FEHA.  Criminal misdemeanor penalties apply; all monetary relief available under FEHA may be imposed, including attorney fees.

AB 51 is being hailed as a victory for workers. Given the current climate of numerous other employee friendly statutes that will become effective in 2020, it is imperative for employers to take inventory of their policies, specifically any arbitration agreement previously implemented, as it is likely that some of the provisions are unlawful.  For example, an agreement that requires an employee to affirmatively “opt-out” of arbitration by so stating in writing is now illegal. Similarly, an employer with just one (1) worker can no longer require that worker to execute an arbitration agreement waiving his or her right to bring an action in civil court for harassment based on a protected category delineated under FEHA. Lastly, as of January 2020, it will be illegal for employers to require workers to waive their right to bring a civil action for any Labor Code violation, such as meal or rest break rules.

Ferber Law encourages you to reach out so that we may assist you in navigating this multi-faceted, complex area of the law to ensure protection from criminal and civil ramifications. A well-drafted arbitration agreement that complies with the specific limitations discussed above is still recommended for employers who desire to avoid a jury trial on claims other than alleged FEHA or Labor Code violations. Ferber Law will keep a close eye on this newly enacted bill as January 2020 approaches and keep you updated on any challenges to its enforceability.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.