Can California Protect Employees from Entering Into Mandatory Pre-dispute Arbitration Agreements and Avoid Federal Preemption?

• Publication year: 2021
• Author: By Paul J. Dubow & Marc D. Alexander

Can California Protect Employees from Entering into Mandatory Pre-Dispute Arbitration Agreements and Avoid Federal Preemption?

By Paul J. Dubow & Marc D. Alexander

Paul Dubow began arbitrating cases in 1972 and was initially trained as a mediator in 1994. He became a full time neutral in December 2000, following his retirement after 26 years as director of litigation at Dean Witter Reynolds. He has arbitrated or mediated over 550 cases. pdubow2398@aol.com.

Marc Alexander is a mediator and litigator at AlvaradoSmith APC. He authors the blog California Mediation and Arbitration (www.calmediation.org) and co-contributes to the blog California Attorneys Fees (www.calattorneysfees.com). His email is malexander@alvaradosmith.com.

In California, legislative efforts to prevent employers from requiring employees to sign pre-dispute arbitration clauses, removing the right to a court or jury trial, have traveled a long and rocky road. The biggest rock — really a boulder — has been the doctrine of federal preemption. Does the Federal Arbitration Act (FAA) preempt California's most recent attempt to prevent employers from requiring employees to enter into mandatory pre-dispute arbitration agreements?

We describe California's legislative efforts and the state of the law. And spoiler: because the state of the law is evolving, and may yet change, we offer our best suggestions for what employers and employees can do under current uncertain circumstances in California.

The FAA (1925), like its predecessor the New York Arbitration Act (1920), was a response to judicial hostility to arbitration, and an effort to create an economic and efficient means to resolve disputes among merchants. Earlier judicial hostility to arbitration meant parties could revoke arbitration agreements and courts could refuse to enforce arbitration agreements that ousted courts of jurisdiction. Section 2 of the FAA intends to overcome that historic judicial hostility, for section 2 provides that a written arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 USCS § 2.) In practice, section 2 means arbitration agreements are to be enforced as written unless there is an established defense in law or equity for revoking the contract, such as lack of consent, unconscionability, or fraud.

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California's efforts to preserve the right of aggrieved employees to go to court have played in three acts. In act 1, our Legislature passed Assembly Bill (AB) 465, banning employers from requiring arbitration as a condition of employment, and making the arbitration agreement unenforceable. Governor Jerry Brown vetoed this bill on the ground that cases consistently held a blanket ban of arbitration violated the FAA. In act 2, the Legislature passed AB 3080, prohibiting an employer from requiring an employee to waive a judicial forum as a condition of employment. This too was vetoed by Brown as a violation of federal law.

And...