On October 10, 2019, California Gov. Gavin Newsom signed Assembly Bill 51 (AB 51) into law, prohibiting employers from requiring employees to sign mandatory arbitration agreements as a condition of employment.

AB 51 adds Section 432.6 to the Labor Code, which prohibits an employer from requiring an applicant for employment (or employee) to “waive any right, forum, or procedure” for an alleged violation of the California Fair Employment and Housing Act or Labor Code generally.

Although an employee may voluntarily consent to enter into an arbitration agreement, AB 51 prohibits arbitration agreements that require employees to “opt-out” of a waiver or take any affirmative action to avoid waiving the right to civil court. Additionally, a prevailing plaintiff under AB 51 is entitled to injunctive relief and attorneys’ fees. AB 51 applies to contracts entered into, modified, or extended on or after January 1, 2020.

Authored by Assembly Member Lorena Gonzalez, AB 51 was designed to ensure that entering into arbitration is a choice for employees, not a precondition of their employment. “When both parties choose arbitration freely, it can be a highly effective tool. But it doesn’t work when corporations say you won’t be hired unless you sign away your rights,” Gonzalez said. “This law will protect workers when employers allow discrimination, permit sexual harassment, or engage in wage theft.”

Despite these lofty ideals, the passage of AB 51 is likely to conflict with U.S. Supreme Court precedent holding that the Federal Arbitration Act preempts state law regarding the enforceability of arbitration agreements. Indeed, former Gov. Jerry Brown vetoed two similar bills prohibiting mandatory arbitration agreements, AB 465 (2015) and AB 3080 (2018), on the premise that states must follow the FAA and the Supreme Court's interpretation of the Act.

Despite the near certainty of court challenges to the enforceability of AB 51, which will likely take years to resolve, companies should consult with counsel over the continued use of mandatory arbitration agreements in employment agreements.