For the past 10 years or more, many California employers have adopted policies requiring that employees sign arbitration agreements as a condition of employment, thus waiving their rights to a trial by jury. Indeed, some sources indicate that as many as two-thirds of all California employers have adopted such policies. The reasons are varied, but most often cited is the greater speed and lower cost of arbitration as opposed to court litigation.
Naturally, plaintiffs’ lawyers and their allies in the state legislature abhor arbitration since they cannot extort substantial settlements with the threat of a possible runaway jury award. However, their repeated attempts at curtailing or limiting arbitration have been repeatedly turned back by the U.S. Supreme Court, relying on the Federal Arbitration Act’s preemptive effects on state action.
The most recent attempt by the legislature was the adoption of AB 51. This statute went into effect on January 1, 2020, and effectively prohibits arbitration agreements as a condition of employment under threat of civil and criminal sanctions.
Thankfully, a number of employer groups including the U.S. and California Chambers of Commerce filed a lawsuit in the federal court in Sacramento seeking to enjoin the state’s enforcement of AB 51. Initially, Judge Mueller granted a temporary restraining order, just before the statute was to take effect, pending briefing and a hearing for preliminary injunction. More recently, on February 6, 2020, Judge Mueller issued her decision granting the preliminary injunction. Thus, unless her decision is overturned on appeal, employers are free to continue to require employees to sign arbitration agreements as a condition of employment.
We do want to pass on a cautionary note. Many employers have taken advantage of the U.S. Supreme Court’s approval of arbitration agreements which also bar class actions. Thus, many employers have successfully avoided class actions, where each affected employee would be required to arbitrate their individual claims separately. However, there can also be a blacklining to this cloud as Door Dash recently found out. Its employees were bound to arbitration agreements with class action waivers. When the District Court ordered individual arbitrations, over 6,000 employees filed their claims with the American Arbitration Association. Door Dash was ordered by the District Court to pay AAA filing fees which amounted to over $12,000.000! Now we don’t believe that many plaintiff’s lawyers will utilize this tactic, but forewarned is forearmed.