Law Protecting Workers from Mandatory Arbitration Blocked from Taking Effect by Big Business

If you were offered a job, but it required you to give up certain rights, including the right to sue your prospective employer over future employment law violations, would you take it? You’re competent, easy to get along with and professional, so if that offer has the right number of zeroes behind it, you probably would, right? Congrats on the new gig!

Now what if you found out that giving up those rights enabled your employer to cover up multiple employee claims of sexual impropriety on the part of an executive spanning a decade or more? It might just give you pause before signing on the dotted line, and this is exactly what can happen when California workers sign employment agreements containing mandatory arbitration clauses.

Because of the secretive nature of arbitration, employers can cover up single incidents of wrongdoing or systematic abuses of employee rights without those transgressions ever becoming public.

AB 51 and the fight against forced arbitration

California Assembly Bill 51, or “AB 51,” protecting employees from these mandatory arbitration clauses in employee contracts, passed in 2019 and went into effect at the beginning of 2020. Unfortunately, this leap forward for workers’ rights has already been stopped dead in its tracks by a federal lawsuit brought by big business, who want to retain the ability to use these clauses to prevent employees from availing themselves of the court system. Why? Because it allows them to do business as usual without the bright lights of the justice system shining into their dark corners.

“Forced arbitration is among the most harmful practices that have enabled widespread abuse to go undetected for decades. Workers are forced to sign away their rights in order to get hired.”
– Sen. Lorena Gonzalez (D), Long Beach, quoted in Senate Budget Committee analysis of AB 51

In this article, we will pull back the veil of the arbitration process in California employment law cases and show why employees in our state need protection from these one-sided, unnegotiated, harmful contract clauses.

U.S. Chamber of Commerce v. Becerra

The lawsuit that put the brakes on AB 51 was actually filed on December 9, 2019, more than three weeks before the law even went into effect. After a temporary restraining order (TRO) was issued on January 10 preventing enforcement of AB 51, Chief District Judge Kimberly J. Mueller of the U.S. District Court for the Eastern District of California extended her order barring enforcement of the law until a ruling can be made as to whether the law is pre-empted by the Federal Arbitration Act (FAA).

The plaintiffs in the case include seven major state and national trade associations, including the United States Chamber of Commerce, the largest organization of its kind in the world, boasting more than 300,000 member businesses. They convinced the court to stop AB 51 from being enforced while their claim that the national FAA supersedes the state law is litigated through the federal court system.  This type of challenge will likely end up before the Supreme Court, which may take years to reach a decision.

In the meantime, it is helpful to look at two of the other arguments made by the business groups in order to better understand how forced arbitration has helped them silence workers with legitimate grievances.

Arbitration provides workers with a fair and effective means of resolving their disputes

Arbitration is a method of alternative dispute resolution wherein a person or group chosen by the parties hears arguments and issues a decision on a legal matter. At its most basic level the plaintiffs are correct, when the parties agree on the forum, the referee and rules of the proceeding, arbitration is extremely effective.

Mandatory arbitration employment contract provisions put the employee at a serious disadvantage.

Unfortunately, the level playing field that exists in theory is far from the reality of a one-sided forced arbitration. The California Senate Rules Committee noted in its analysis that employees who are bound by mandatory arbitration will have many obstacles to overcome, including:

  • A lack of familiarity with the arbitration process, unlike an employer or arbitration judge
  • Knowledge of the arbitration rules, which may limit evidence and thus prevent the employee from presenting a full case
  • Potential conflicts of interest in cases where the arbiter frequently works with an employer or group of employers with similar business interests

So, while arbitration should be an efficient and effective method to resolve disputes, these mandatory arbitration employment contract provisions put the employee at a serious disadvantage.

Arbitration is faster and more cost effective than litigation in court

Generally, the efficiency of alternative dispute resolution methods like arbitration is a primary reason that they are favored over the ponderous, expensive court system. However, when the expediency of these proceedings is coupled with the secretive nature of the process, it becomes a way for employers to violate the law without the consequences and scrutiny it would otherwise face.

“[Employers] can often draw a heavy veil of secrecy around allegations of misconduct and their resolution”
– Prof. Cynthia Estlund in ‘The Black Hole of Mandatory Arbitration’

As Prof. Cynthia Estlund found in her study of labor arbitration proceedings, these employers “can often draw a heavy veil of secrecy around allegations of misconduct and their resolution,” which “means that firms have less to worry about if they violate the law.”

In terms of avoiding scrutiny, she notes that “[t]hey face more limited ‘reputational sanctions,’ which are among the most powerful deterrents to illegal or legally questionable conduct.” These reputational sanctions, as we know all too well from the revelations of systemic sexual misconduct and harassment that have come to light over the last two years, are a powerful force that permeates our society today.

Forced arbitration left unchecked is a detriment to employees throughout California

In its analysis of the reasons for passing AB 51, the Senate Rules Committee notes that before a series of cases decided by the Supreme Court in the 2000s came down as pro-arbitration, around 2% of employment contracts contained the forced arbitration clause. The most recent data available for California from the Economic Policy Institute shows that 67% of employers in our state require workers to agree to mandatory arbitration as a condition of their employment.

California Senate Rules Committee Analysis of AB 51 citing data from the Economic Policy Institute

The proliferation of these clauses in employment agreements for every kind of job are clearly not inserted to protect the worker or the interests of justice; they are there to protect the employer by allowing the firm to dictate the rules and referee for any employment law dispute.


What can I do about a mandatory arbitration clause in my contract?


While AB 51 may be years from coming into effect, if it does at all, you can still protect your rights as a California worker. If you have already signed your employment contract, it may be possible to renegotiate. If you are currently negotiating a new agreement or a contract renewal, you may be able to get your employer to amend the clause so that you have more input in process and procedure, or remove it altogether.

The best way to achieve any of these results, learn more about the status of AB 51, or get answers to any of your other employment law questions is to consult with a California employment attorney.