Nicole Rice

Anti-Arbitration ban approved by Legislature

By Nicole Rice, Policy Director, Government Relations

Capitol Update, Aug. 28, 2015

The Legislature has approved the anti-arbitration bill and sent it to the Governor for consideration. Both Houses passed the measure along partisan lines with several Moderate Democratic Senators and Assembly Members opting not to cast a vote. 

AB 465, authored by Assembly Labor & Employment Committee Chairman Roger Hernández (D-West Covina), bans the use of arbitration agreements as a condition of employment. It also prohibits an employer from threatening, retaliating, or discriminating against an individual who refuses to agree to such waiver and requires that any waiver be knowing, voluntary and in writing but not as a condition of employment.

At this time it is uncertain how the Governor will respond to this measure, given that he signed an arbitration ban last year related to civil rights claims. 

The Federal Arbitration Act (FAA) and the California Arbitration Act (CAA) evidence a strong preference for enforcement of arbitration agreements, so long as the underlying contract is fair, and the FAA generally preempt state laws that restrict enforcement of arbitration agreements. Similarly, the use of pre-dispute employment arbitration agreements has been upheld by both federal and state judicial decisions and the California Supreme Court has imposed some of the strong protections for employees subject to these agreements. However, the Legislature was not persuaded by these arguments nor the amendments offered by the business community to address the proponents specific concerns. Instead, they supported the full ban on the use of arbitration agreements as a condition of employment with last minute amendments that removed the $10,000 penalty and exempted a limited category of employees but essentially left the substantive aspects of the bill intact.

If signed by the Governor, AB 465 will only increase litigation costs of individual claims, representative actions and class action lawsuits against California manufacturers and ultimately create uncertainty as it is challenged through the judicial process. 

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