California Employers Can Still Require Employees to Sign Arbitration Agreements…For Now | FFS Insights

In October of 2019 Governor Newsom enacted a law that prohibits California employers from requiring their employees to enter into certain types of arbitration agreements.  Specifically, the law precludes employers from requiring, as a condition of employment, continued employment, or the receipt of any employment-related benefits, that any employee waive his or her right to file a lawsuit in a court of law where the claim arises from alleged violations of the Fair Employment and Housing Act (“FEHA”) or the California Labor Code.  Employers are also precluded from retaliating or discriminating against employees who refuse to waive these rights.  This new piece of legislation, which was set to take effect on January 1, 2020, does not apply to post-dispute settlements or negotiated severance agreements, nor does it apply to persons registered with a self-regulatory organization under the Securities Exchange Act of 1934.

Despite passage of the law, a coalition of business groups led by the U.S. Chamber of Commerce filed a lawsuit in federal District Court in December of 2019 seeking a preliminary injunction that would block the legislation from taking effect.  The basis for relief was that the law was preempted by the Federal Arbitration Act, which does not prohibit use of arbitration agreements in the instances identified above.

On January 31, 2020 the court issued a brief minute order granting the preliminary injunction which effectively blocks enforcement of the law while the litigation ensues.  A comprehensive order outlining the specific reasons for the court’s decision is anticipated shortly.

The court’s recent order signifies that for the time being, California employers may continue to require that their employees sign arbitration agreements.  However, this could still change as the litigation unfolds.  Employers should ensure that they do not run afoul of California law in the event that the legislation does ultimately take effect as the law authorizes attorneys’ fees for prevailing employees and imposes criminal penalties for violation of its provisions.

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This article is made available for educational purposes and to provide general information on current legal topics, not to provide specific legal advice. The publication of this article does not create any attorney-client relationship and should not be used as a substitute for competent legal advice from a licensed professional attorney.