Nicole Rice

Assembly moves to prohibit pre-dispute arbitration agreements

By Nicole Rice, Policy Director, Government Relations

Capitol Update, May 15, 2015 Share this on FacebookTweet thisEmail this to a friend

If you include arbitration agreements in your terms of employment, the State Assembly has deemed them “involuntary, unconscionable, against public policy and unenforceable” by voting to approve AB 465 by Assembly Member Roger Hernandez (D-Los Angeles), which precludes their use and imposes a civil penalty and attorney’s fees for any violation. This bill conflicts with state and federal judicial decisions that have upheld the use of such agreements as well as federal statute that preempts contradicting state law.

The California Supreme Court has held multiple times that pre-dispute employment arbitration agreements upon which employment is conditioned are valid and enforceable as long as certain contractual protections are included, including the selection of a neutral arbitrator; adequate opportunity to conduct discovery; and no limits on statutory remedies. Arbitration agreements that do not contain these mandated safeguards have been regularly struck down. Further, the United States Supreme Court has also held that the Federal Arbitration Act (FAA) prohibits states from conditioning the enforceability of an arbitration agreement on the availability of certain procedures since that would be inconsistent with the intent of the FAA.

However, despite this judicial precedent, AB 465 still managed to get the requisite votes needed to pass the Assembly and advance to the State Senate, with the support of many of the business-friendly members of the Majority Caucus.

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