CA Governor Vetoes Ban on Employment Arbitration Agreements

Businesses throughout California were up-in-arms about legislation that would have effectively prohibited employers from requiring signed arbitration agreements as an employment condition. Assembly Bill 465 was passed by the California legislature, despite complaints from employer groups that the bill could be a job killer. Governor Brown, however, vetoed AB 465 and issued a strong veto statement, citing prior California supreme Court decisions related to employee arbitration agreements. business deal 2

A Southern California employment law attorney knows, many clients would prefer to have their day in court when a dispute arises related to their working conditions or the way they were treated on the job. AB 465 was intended to make sure employers couldn’t require workers to give up their right to a trial when a problem arises. Since it did not pass, the status quo remains and employers may continue to make signing an arbitration agreement a condition of employment as long as the agreement meets existing requirements.

Ban on Employment Arbitration Agreements is Vetoed

AB 465 would have required any waiver of any legal rights by an employee who is being hired to be in writing. AB 465 also stipulated the waiver must not be an express condition of hiring the worker. This would have prevented employers from mandating an arbitration agreement, which is a waiver of the right to a court trial. The Assembly Bill would have also placed the burden on the employer to prove both that the waiver wasn’t a condition of employment and that the employee’s signing of the waiver was voluntary. This created an almost impossible situation for employers who wanted to include arbitration agreements in employment contracts, since proving employees signed 100 percent voluntarily would have been very difficult.

When Governor Brown vetoed AB 465, he stated he was: “not prepared to take the far-reaching step proposed by this bill for a number of reasons.” The governor referenced a case called Armendariz v. Foundation Health Psychcare Services, Inc., in which the California Supreme Court set forth protections which must be included in employee arbitration agreements. For example, arbitration agreements must specify the arbitrator will be neutral, and the arbitration process must allow time for adequate discovery. Arbitration agreements also must impose no limitations on remedies or damages, and must impose cost limitations on the arbitration process. The decision of an arbitrator also must be written and is subject to judicial review.

In addition to citing existing protections, Governor Brown also acknowledged that a blanket ban on arbitration clauses in employment agreements was a far-reaching approach, which had failed in other states because their arbitration bans were struck down as violations of the Federal Arbitration Act.

There are several pending cases being considered by the Supreme Court related to arbitration clauses, both of which arise out of California. The cases, including MHN Government Services, Inc. v. Zaborowski and DIRECTTV, Inc. v. Imburgia, could further affect the rules related to arbitration clauses as these cases also address preemptions of the Federal Arbitration Act. Employers and employees should closely follow these cases, as the Supreme Court has been trending towards clearing obstacles standing in the way of the Federal Arbitration Act.

Contact the employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside and Los Angeles. Call 949.375.4734.

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