Are Arbitration Agreements Legal?

Many small businesses in the past have required their employees agree to arbitration and mandated either specifically written or standard use Arbitration Agreements as a condition of employment. These forms typically contain clauses requiring arbitration in the event of a dispute between the employee and an employer.

However, in 2019, California passed a law prohibiting employers from requiring employees to sign arbitration agreements as a condition of employment. The law would have taken effect on January 1, 2020, but this law was challenged in court and its effective date put on hold—leaving employers in the dark.

Recently, on September 15, 2021, the 9th Circuit reversed, in part, the preliminary injunction and held that California Labor Code section 432.6—which prohibits employers from requiring employees to agree to arbitration agreements as a condition of employment on or after January 1, 2020—can, in large part, be enforced. However, agreements signed prior to January 2020 may still be valid.

Further complicating the issue On March 3, President Biden signed into law a significant modification to the federal arbitration law. Known as the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021”, the new law essentially restricts employers from forcing workplace sexual harassment or assault claims to be resolved by arbitration.

So where does this leave employers? Well, in very gray territory, but there are (some) paths to be able to implement Arbitration Agreements in your workplace.

It’s first important to understand that employers are advised to seek legal counsel before implementing any new Arbitration Agreements, and to have any existing agreements reviewed to be sure they are valid.

Currently, in California, employers currently should not require employees to agree to arbitration agreements as a condition of employment, but employees may voluntarily agree to do so. If an employer does decide to implement Arbitration Agreements, it is advised that the agreement include specific language that makes it clear that entering into the arbitration agreement is voluntary and not a condition of employment, and that there will be no retaliation if an employee chooses not to sign the agreement.

Additionally, the Supreme Court ruled last week that PAGA actions can be forced to individual arbitration, so employers can effectively get class action waivers in California through arbitration again.

If you need further information or advice, Infinium HR has partnered with labor attorneys to review existing agreements and/or implement new agreements. Please reach out below for more information.