A popular option amongst my business clients these days is to include a mandatory binding arbitration agreement in their employment contracts. These agreements are now under attack.
The reason for including arbitration agreements in an employment contract is simple: the extremely high costs associated with litigating menial wage and hour claims by disgruntled employees often means that a business owner has no choice to settle a lawsuit as opposed to fighting back against bogus claims.
Arbitration agreements take these menial claims out of the court system and labor commissioner process. Arbitration in front of a neutral third part is much more cost effect and less time consuming than public litigation. No less than the United States Supreme Court has upheld the validity of these arbitration agreements, much to the chagrin of trial-lawyer funded California legislators.
Assembly Bill 465, authored by ultra-liberal assembly member Roger Hernandez is trying to roll back a common-sense protection for California employers.
As currently drafted, AB 465 would make it illegal for an employer to force an employee to agree to a mandatory binding arbitration agreement. Requiring an employee to sign such an agreement as a condition of their employment would be expressly illegal should this bill become law.
The bill would also impose a draconian $10,000 penalty for each violation of this new law. And of course, employees would be granted a private right of action to enforce the bill's provisions, with reasonable attorney's fees being available to a prevailing claimant.
This bill is a massive giveaway to plaintiff's employment lawyers throughout California. The litigation that would ensue if this bill becomes law would keep the trial lawyers fat and happy for years to come.
The bill is currently pending in the Senate, already having been approved by the Assembly. It will be interesting to see how the bill changes before it receives its final votes.
Even if the bill were to become law, there are doubts whether the law would be upheld on challenge in the courts. The Supreme Court has given strong preference to the enforceability of arbitration agreements, and this new law would directly challenge those decisions.
I'll keep an eye on this as the legislative session winds down in the fall. More to come!
September 1,5 2015 Update: AB 465 was approved by the Legislature and is currently on the Governor's desk for signature or veto.