Can Employers Still Include Arbitration Provisions in Employment Agreements in California? (An Update for 2024)

Several years ago, lawmakers in California moved to effectively ban mandatory arbitration provisions. After extensive litigation, that proposed law (AB 51) is effectively dead. As of 2024, employers can include a properly drafted mandatory arbitration clause in an employment contract in California. Here, our Riverside County employment lawyer explains the key things that businesses should know about arbitration provisions in employment contracts in California.

Background: California Lawmakers Sought to Ban Mandatory Arbitration 

In October of 2019, California Governor Gavin Newsom signed Assembly Bill 51 (AB 51) into law. The legislation effectively barred the use of mandatory arbitration provisions in employment contracts. A lawsuit challenging the validity of the bill was filed almost immediately by the California Chamber of Commerce. The law was set aside and litigation went forward.

 Ninth Circuit Court Found AB 51 Was Preempted By Federal Law (FAA) 

In early 2023, the Ninth Circuit Court of Appeals dealt a major blow to California’s AB 51. After a comprehensive review, a majority of the court found that the law was preempted by the Federal Arbitration Act (FAA). The FAA is a cornerstone of federal arbitration law. It established a strong presumption in favor of enforcing arbitration agreements. The court effectively found that California lawmakers overstepped their authority in their effort to ban arbitration clauses from employment agreements.

 Federal Court Permanently Enjoined AB 51 

On January 1, 2024, a federal court in California permanently enjoined AB 51. What does this mean? It essentially halts the state’s attempt to bar mandatory arbitration for employment. The decision, at least for the time being, marks the end of the legal battle over the enforceability of AB 51. State officials in California have indicated that they do not intend to pursue any other appeals related to AB 51. In other words, the law will not take effect.

Where the Law Stands: Mandatory Arbitration Provisions Remain Lawful in California 

Following the permanent injunction against AB 51 and the reinforcement of the FAA’s preemption, employers in California can continue to include mandatory arbitration provisions in employment agreements. However, it is crucial to ensure that these provisions are properly drafted. These agreements will receive close scrutiny for their validity if an employee challenges them in court.

For employers in California, a mandatory arbitration clause can offer a number of different advantages when contrasted with traditional litigation. Along with other things, arbitration provisions can be cost effective, confidential, flexible, and can save time if a dispute with an employee arises. Further, decisions in arbitration are typically final and binding. There are only limited grounds for appeal.

Contact Our Employment Law Attorney in Riverside County Today

At Sloat Law Group, our California employment lawyer invests the time, resources, and attention to detail needed to help clients protect their rights and their interests. Contact us today to set up your confidential initial appointment. We represent employers in the Coachella Valley, Riverside County, and throughout all of California.

 Source:

 leginfo.ca.gov/pub/15-16/bill/asm/ab_0051-0100/ab_51_bill_20160819_chaptered.html