On January 1, 2020, a new California law could prevent employers in that state from requiring arbitration of employment claims brought under state law. The new law was prompted by stories revealed as a result of the #MeToo movement indicating that sexual harassment claims were squelched by the employees’ inability to litigate the matters in court. However, AB 51 reaches well beyond harassment claims to cover a wide range of discrimination and wage payment protections. Employees who have signed arbitration agreements could sue under state law for the specific purpose of avoiding application of those agreements.
Employers are certain to challenge the new law as preempted by the Federal Arbitration Act (FAA). The FAA generally prevents states from enacting laws that treat arbitration agreements differently from other contracts. The previous California governor vetoed this legislation over concerns that the law would be declared invalid by federal courts. Such litigation could take years, meaning that until courts provide a clear judgment on the law’s effectiveness, employers’ attempts to enforce mandatory arbitration agreements in California will face legal challenges and delays.