Business owners and employers in Fremont and throughout Northern California should know that they may not be permitted to require employees to agree to arbitration clauses or agreement under particular circumstances, according to a new law in the state. The new law, Assembly Bill 51, limits the ways an employer can use an arbitration clause. In brief, you may not be able to require new employees to sign employment contracts that contain arbitration clauses. We want to provide you with more information about the new law, which was supposed to take effect in early 2020, and to explain what its implications might be for California businesses.
Understanding California Assembly Bill 51
California Governor Newsom signed Assembly Bill 51 into law in October 2019, to commence in January 2020. The law is designed to prohibit employment discrimination, and one aspect of the bill is that it prohibits employers from requiring job applicants or current employees, as a condition of their employment, to enter into arbitration agreements. The legislative reasoning behind this part of the bill was that arbitration agreements can unnecessarily silence employees and can prevent them from making concerns about sexual harassment at work, public.
Under the new law, it is unlawful (and actually criminal) for an employer to require a job applicant or an employee to agree to an arbitration under the California Fair Employment and Housing Act (FEHA) or the California Labor Code, as a condition of that person’s employment. The law does not invalidate currently existing arbitration agreements. Yet business advocates have filed a lawsuit to prevent the new law from taking effect, arguing that the Federal Arbitration Act (FAA) preempts AB 51. The U.S. District Court for the Eastern District of California recently issued a preliminary injunction that prevents California from enforcing the terms of AB 51. Until the case is ultimately decided, what should your business do?
Impact of AB 51 on Businesses in California
For many businesses in California, arbitration—including mandatory arbitration—can help to keep business costs down and can prevent costly business litigation in the event of an employment or other contract dispute. As such, it is in the interest of many small businesses in Northern California that the law be preempted by the FAA.
In the meantime, what should you, as a business owner in the Fremont area, do to ensure that you are in compliance with existing law? Most importantly, you should know that any arbitration agreement that existed prior to January 1, 2020—when AB 51 was supposed to take effect—does not fall under the new law at all. Even if it were to take effect, arbitration agreements in force prior to this date will remain lawful. Next, you should keep in mind that AB 51 only applies to claims under the FEHA or the California Labor Code. Accordingly, it is certainly lawful to require employees to agree to arbitration for disputes that would not arise under either of these laws.
If you want to require an employee or prospective employee to agree to arbitration for claims that could potentially be covered by AB 51, it is important to recognize that you are taking a risk as a business. If AB 51 is ultimately determined to be lawful and not preempted by the FAA, then any arbitration agreements you make after January 1, 2020 could result in both civil and criminal penalties. However, if AB 51 ultimately cannot take effect, an arbitration agreement that would otherwise be prohibited by AB 51 could be enforceable in California. If you have questions about your business’ situation, you should speak with a business lawyer as soon as possible.
Contact a Fremont, CA Business Law Attorney
If you have questions or concerns about how the new limits on arbitration could impact your business, it is important to speak with an experienced Fremont business law attorney as soon as possible. The law will have significant practical considerations for many small business owners, tech companies, and other businesses in the region.
Contact the Law Office of Lynnette Ariathurai online today or call us at 510-794-9290 to learn more about whether California employers can still have mandatory arbitration agreements with employees. We represent business owners across Northern California in Fremont, Hayward, Union City, Milpitas, and Newark.