Hunton Employment & Labor Perspectives

Over the weekend, California Governor Jerry Brown vetoed a bill aimed at prohibiting mandatory employment arbitration agreements as a condition of employment.  The bill also would have made it unlawful for an employer to discriminate or retaliate against an employee who refused to sign an arbitration agreement.  The Governor’s veto marks a victory for the dozens of business associations (and California employers) that opposed the bill.

Under existing California law, an employer can require its employees to sign a valid arbitration agreement as a condition of employment.  Generally, by entering into an arbitration agreement, the employer and the employee agree that any dispute arising out of the employment relationship will be decided by a neutral arbitrator, instead of by a civil judge and jury.  Those agreements also may contain class action waivers.  AB465, however, would have prohibited employers from requiring employees to sign arbitration agreements as a condition of employment, and would have deemed such agreements “involuntary, unconscionable, against public policy, and unenforceable.”  Under the proposed legislation, an employer seeking to enforce an arbitration agreement would have had the burden of proving that the agreement was entered into knowingly and voluntarily and not as a condition of employment.  The bill also would have prohibited employers from threatening, retaliating, or discriminating against an employee who refused to sign an arbitration agreement.

Opponents of the bill argued that California’s civil courts are overburdened and that arbitration is an effective and efficient means of resolving employment-related claims.  Opponents also argued that the bill conflicted with the Federal Arbitration Act, which generally preempts state legislation that restricts the enforcement of arbitration agreements or singles out arbitration agreements for special treatment.

Supporters of the bill, on the other hand, argued that arbitration lacks the fairness and due process guarantees of the civil judicial system, and that employees who do not wish to give up their right to resolve claims in a civil court may be fired or refused employment.

In vetoing the bill, Governor Brown noted the conflicting conclusions in various studies over whether arbitration is unfair to employees and his concern for ensuring fairness in employment disputes.  But, in explaining the basis for his veto, the Governor acknowledged that the California courts have addressed the “issue of unfairness” though case law that imposes “numerous protections” for employees before an arbitration agreement may be enforced.  The governor also cited the “far-reaching approach” of the proposed legislation and the fact that similar approaches have been consistently struck down when enacted by other states as reasons for vetoing the proposed law.  The governor’s veto message also recognized the two cases currently before the U.S. Supreme Court – in which challenges to the California courts’ treatment of arbitration agreements is at issue – and noted that he “prefer[red] to see the outcome of those cases”  before “enacting a law as broad as this[.]”

Had the governor signed AB465 into law, California would have been the only state in the country to ban arbitration agreements as a condition of employment.