On August 27, 2015, the California Assembly approved AB 465. The bill, which was approved by the California Senate on August 24, would prohibit California employers from requiring most individuals to enter into arbitration agreements as a condition of their employment.

For years, California employees have primarily relied on the doctrine of unconscionability to argue against the enforceability of arbitration agreements. This argument typically requires two things: first, a showing that the agreement is procedurally unconscionable, meaning that there was some unfairness in the procedure or method in which the agreement was presented to the employee, and second, a showing that the agreement was substantively unconscionable, meaning that its terms were overly harsh or one-sided. If signed by Governor Brown, AB 465 would change that analysis.

AB 465 provides that arbitration agreements, and other waivers of legal rights, must be “knowing and voluntary and in writing, and expressly not made as a condition of employment.” This would represent a shift in California law as it would allow employees to invalidate arbitration agreements without a showing of both procedural and substantive unconscionability. In addition to this change, AB 465 makes several other changes, including

  1. placing the burden of proving that an arbitration agreement was proper on the employer,
  2. making arbitration agreements required as a condition of employment per se invalid, and
  3. providing employees who are successful in invalidating these types of agreements the right to recover their attorneys’ fees.

With its passage by the California Assembly, the bill now goes to Governor Brown for his signature. Even if Governor Brown chooses not to sign the measure, employers should make sure that their arbitration agreements are in compliance with the current state of California law. If the bill is signed, however, then employers with operations in California should immediately take steps to ensure that their arbitration agreements comply with the new law or risk an influx in lawsuits brought by both individual and classes of employees.