A California law that deprives candidates and employees of the opportunity to submit to mandatory arbitration as a condition of employment was put on hold Monday by a federal judge in Sacramento, just over a day before it took effect. A new activist strategy this year has been to file thousands of individual arbitration claims against Uber, Lyft, DoorDash and Postmates, which hit companies with millions of dollars in arbitration fees. Companies that used to deal with employee complaints in succession refused to pay. The ban on mandatory work reconciliation agreements will come into force on 1 January 2020 and will apply to arbitration agreements concluded, amended or renewed on 1 January 2020 or after 1 January 2020. However, not all arbitration agreements reached before January 1, 2020 are affected and can be enforced. In addition, the new law does not completely prohibit arbitration agreements with employees and does not apply to violation of contractual rights or to unlawful acts such as fraud or negligence. In addition, the new law states that it will not invalidate a written arbitration agreement that otherwise applies under the FAA. Jang and Kirmani found that most arbitration agreements are applicable under the FAA. 8. Does AB 51 apply to post-conflict agreements or negotiated severance agreements? The law does not apply to arbitration proceedings involving “a person registered with a self-regulatory organization [such as the Financial Industry Regulatory Authority] within the meaning of the Securities Exchange Act of 1934.” No no. The law does not prohibit an employer from entering into an arbitration agreement as part of a post-conflict settlement or as part of a negotiated compensation agreement; However, the law does not define the term “negotiated.” Employers wishing to implement arbitration agreements and employers who currently have agreements are encouraged to review all ongoing arbitration agreements with legal advisors. However, a coalition of professional associations filed an appeal in the Federal Court in December, before the law could come into force on January 1, 2020, claiming that the law is anticipated by the Federal Arbitration Act (FAA).
In December, the Federal Court issued a referral order, which was excluded from coming into force at age 51 and imposed the application of the FAA Arbitration Agreements Act on February 7, 2020. The state of California is now appealing the decision to the Ninth Court of Appeals. Therefore, the validity of this law is still in question. New covid-19 realities may further delay this process. Ogletree Deakins will continue to monitor and consolidate the litigation with AB 51. In addition, the U.S. Supreme Court recently relied on the FAA to reject the argument that the class action waivers contained in the arbitration agreements are contrary to the National Labor Relations Act in Epic Systems v. Lewis.
A federal court also ruled earlier this year that a New York law prohibiting the use of mandatory arbitration agreements in sexual harassment cases was not compatible with the FAA. Labour law experts also say that arbitration agreements pose practical difficulties for employees who have difficulty finding a lawyer to represent them.