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California State Legislature Passes Bill Restricting Mandatory Arbitration of Labor Code Violations

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Blog Author: Ian J. Barlow

The California State Legislature has passed significant legislation affecting the rights of California workers.  On August 31, 2015, the Legislature passed Assembly Bill 465 (“AB 465”), which has the stated purpose of ensuring that any waivers of important employment rights and procedures for California Labor Code violations are made voluntarily.  AB 465 would prohibit employers from requiring that employees or potential employees sign arbitration provisions that waive their ability to pursue employment claims with, for instance, the Labor Commissioner, a public or law enforcement agency, or in court as a condition of their employment.  It seeks to eliminate forced waivers, where an employer refuses to hire or fires an employee if they do not agree to subject employment disputes to mandatory arbitration.  In addition, the bill mandates that agreements to waive such employment protections, procedures and court or governmental forums are made with the consent of the employee by requiring that such waivers are entered into knowingly, voluntarily and in writing.

Proponents of AB 465 contend that forced waivers and mandatory arbitration of workplace claims undermine our public justice system by eliminating important procedural guarantees of fairness and due process.  (Senate Floor Analysis of AB 465, Aug. 21, 2015, at p. 5.)  They also note that employers typically select the arbitration services provider, which creates a “repeat player advantage” favoring employers that utilize the same provider and disadvantaging individual employees who are one-time participants in the arbitration process.  Furthermore, arbitration clauses are often buried in fine print of employment applications or employee manuals and handbooks, making it difficult or nearly impossible for an employee to evaluate and make an informed choice about his or her options for resolving potential employment disputes.  Additionally, forced arbitration provisions are becoming increasingly common in “low-wage workplaces where immigrant workers who may not even speak the language used in the contract are required to sign as a condition of employment.”  (Id. at p. 8.)

AB 465 adds section 925 to the California Labor Code, which in part:

  • Prohibits employers from requiring a person to waive any legal rights, penalties, remedies, forums, or procedures for Labor Code violations, as a condition of employment;
  • Prohibits employers from threatening, retaliating, or discriminating against a person who refuses to waive any legal rights, penalties, remedies, forums, or procedures for Labor Code violations;
  • Requires any waiver of rights, penalties, remedies, forums, or procedures for Labor Code violations to be made knowingly, voluntarily and in writing, and expressly not made as a condition of employment;
  • Specifies that any waiver of any legal rights, penalties, remedies, forums, or procedures for Labor Code violations that is required as a condition of employment shall be deemed involuntary, unconscionable, against public policy, and unenforceable; and
  • Specifies that any person seeking to enforce such a waiver has the burden of proving that the waiver was made knowingly, voluntarily and not as a condition of employment.

Labor Code section 925 would apply to any agreement to waive rights, penalties, remedies, forums, or procedures for Labor Code violations – including arbitration agreements – that were entered into, modified, renewed, or extended on or after January 1, 2016.

The bill was enrolled and sent to the Governor on September 3, 2015.  The Governor has until October 11, 2015 to sign or veto the bill.

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