7. If an employer grants an employee the opportunity to unsubscribe under AB 51, does that release the agreement from legality? 6. Under AB 51, can an employer refuse to recruit a candidate who chooses not to arbitrate? [vi] www.courthousenews.com/drivers-win-bid-to-probe-doordashs-role-in-arbitration-rules/ Many employers seek to take advantage of the various benefits of private arbitration by implementing arbitration agreements either on a voluntary basis or as a condition of employment. In justifying its decision, the Court noted that AB 51 does not conflict with the FAA because it regulates ”pre-agreement employer conduct” that does not affect the validity or performance of an arbitration agreement. The decision also underscored that AB 51`s stated intent — ”to ensure that the conclusion of an arbitration agreement by an employer and an employee is consensual” — is consistent with Congress` intention that the FAA would not anticipate state laws that require ”voluntary” arbitration agreements. If any part of AB 51 survives further judicial review, employers who apply arbitration agreements must ensure that the agreements are purely voluntary. When reviewing their arbitration agreements, employers should also note that the opt-out provisions do not exempt an arbitration agreement from AB 51 and are still considered a ”condition of employment”. Perhaps a middle ground is to take steps to ensure that the use of arbitration agreements is voluntary and not imposed as a condition of employment. One possible consideration is to make these agreements ”stand-alone” documents that are not incorporated into other documents or policies – reinforcing the argument that an employee is free to sign or not sign such an agreement.
For example, employers appear to be subject to criminal and civil penalties if they make employment or benefits conditional on the performance of an arbitration agreement, if employees do not sign the agreement, but they are not subject to such penalties if an employee does not sign the agreement even if the employer has presented it as a mandatory condition of employment. Consideration of whether such agreements are ”voluntary” is likely to depend on more than the use of the term ”voluntary” in such agreements. It is likely that other pre-agreement conditions and factors will be relevant to this overall determination. Therefore, employers should consult with a consultant on approaches to ensure the ”voluntary nature” of these agreements – with a view to considerations that go beyond the mere terms of the agreement itself. The dissent focused on two main objections to the majority opinion: (1) it contradicts the U.S. Supreme Court guidelines in Kindred Nursing Centers Ltd. Partnership v. Clark, 137 pp. Ct. 1421 (2017) (which concluded that the FAA invalidates state laws that obstruct or impede the formation of arbitration agreements), and (2) it unnecessarily creates a shared circuit with the first and fourth circles (which have found that workarounds and ”secret efforts to block the formation of arbitration agreements are excluded from the FAA) without a valid reason to do so.
These two grounds also create the conditions for a ”bench review or intervention by the Supreme Court.” In U.S. Chamber of Commerce v. Bonta, the Ninth District, issued a 2-1 decision upholding AB 51`s ban on promulgating binding labour arbitration agreements as a condition of employment. The court also quashed the district court`s injunction blocking the execution of AB 51 and sent the case back to the district court for a new hearing. While the decision partially confirms California lawmakers` ongoing efforts to circumvent the FAA and prevent labor arbitration agreements, the decision has no bearing on the applicability of the current agreements and largely eliminates the most worrisome aspects of the law that would create new civil or criminal penalties against employers who maintain mandatory arbitration programs. However, a coalition of commercial organizations filed a lawsuit in federal court in December before the law was passed on Dec. 1. January 2020, and claimed that the law is anticipated by the Federal Arbitration Act (FAA). In December, the Federal Court issued a preliminary injunction prohibiting the entry into force of AB 51 and, on February 7, 2020, ordered enforcement with respect to arbitration agreements that fall under the FAA`s jurisdiction. The State of California is now appealing this decision to the Ninth Circuit Court of Appeals. Therefore, the validity of this law is still questioned. New realities related to COVID-19 could further delay this process.
Ogletree Deakins will continue to monitor and summarize the AB 51 dispute. Note that employers may still be subject to civil and criminal penalties if an employee is fired for not signing an arbitration agreement or if a candidate is not hired for refusing to sign the arbitration agreement. While Labor Code 432.6 (a) requires employers to prohibit the implementation of binding arbitration agreements, there is a significant split for arbitration agreements entered into under the Federal Arbitration Act. Specifically, Labor Code 432.6(f) provides: ”Nothing in this section invalidates a written arbitration agreement otherwise required under the Federal Arbitration Act (9 U.S.C Sec. 1 et seq.) is enforceable. In other words, arbitration agreements entered into and governed by the FAA (i.e., not unscrupulous, etc.) are likely to remain enforceable even if they are terminated as of January 1, 2020, notwithstanding Section 432.6 of the newly enacted Labor Code. In addition, the court also noted that Section 432.6 does not affect the FAA because the FAA`s intent, according to the Ninth District, is to promote the enforcement of consensual arbitration agreements. Therefore, section 432.6 does not interfere with this intention by prohibiting only non-voluntary arbitration agreements. Thus, Section 432.6 after the Ninth Circuit governs only conduct prior to the agreement and cannot conflict with the FAA, which takes effect upon the conclusion of an agreement.
In doing so, the Court distinguished the precedent of the U.S. Supreme Court, which concluded that similar recent attempts to restrict arbitration contradicted strong federal policies that favor it. While this may have some appeal to some, there are certain drawbacks or considerations that should be evaluated with a lawyer. If an employee does not have a final arbitration agreement, it could significantly increase the stakes in future class actions. In addition, the court`s decision emphasized that AB 51 ”does not render any arbitration agreement invalid or unenforceable, even if such an agreement is signed in violation of the law.” The opt-out language that our lawyers commonly use when preparing arbitration agreements is not used to demonstrate that the agreement is ”voluntary”, but to show that the arbitration agreement is not procedurally unscrupulous, which is crucial in attempting to enforce arbitration agreements […].