82 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com Relations Act and its protection of concerted activity by employees for their mutual aid and protection. (See § 5.2.4.) Statutory hostility to arbitration. California has enacted several anti-arbitration statutes. Labor Code section 229. This provision purports to void any private agreement to arbitrate wage disputes.16 Although the U.S. Supreme Court in 1987 struck down section 229 as preempted by the FAA,17 the section remains on the books, serving as a snare for unwary employers that move to compel arbitration without establishing that the parties’ transactions are in interstate commerce and thus covered by the FAA.18 Section 229 also remains in effect, of course, as to cases exempt from the FAA, such as cases involving certain transportation workers.19 A 2019 Court of Appeal decision recognized the limited effect of this voided section of California employment law. A clever plaintiff’s lawyer argued in an unpaid wages lawsuit that when contracting parties used a standard clause to choose California law to govern their arbitration agreement, those parties meant to adopt section 229, which invalidates agreements to arbitrate wage disputes. This argument convinced a trial judge, who denied the employer’s motion to compel arbitration, reasoning that the parties, in choosing California law, had thereby agreed to have section 229 apply. But the Court of Appeal reversed this mechanical result and held that because the parties obviously intended to arbitrate all disputes arising from the employment relationship, they could not have meant to negate that intent as to wage claims.20 The Ralph and Bane Acts. California legislators reflected further anti-arbitration animus in the Ralph Act21 and the Bane Act,22 which, by a 2014 amendment, require that any waiver of procedural rights with respect to a violation must be “knowing and voluntary … and expressly not made as a condition of … providing … services.”23 The Court of Appeal recognized that this provision runs afoul of the FAA mandate against state rules that single out arbitration provisions for suspect status, and thus reversed a trial court order refusing to direct Ralph and Bane Act claims to arbitration in accordance with a mandatory employment contract.24 Labor Code section 432.6 and Government Code section 12953. Assembly Bill 51 (AB 51), which was passed in 2019, added Labor Code section 432.6 and Government Code section 12953. These provisions purported to make mandatory employment arbitration agreements entered into after January 1, 2020 unlawful. The statute as written attempted to avoid rendering mandatory arbitration agreements per se unlawful and unenforceable in contravention of the FAA and Supreme Court precedent, and instead attempted to imposed potential civil and criminal sanctions based on the formation of such agreements. The Ninth Circuit saw beyond the statute’s attempted distinction and held that AB 51 is preempted by the FAA.25 However, AB 51 remains in effect as to any arbitration agreements not covered by the FAA. This legislative attempt to avoid mandatory arbitration of employment claims is discussed further in § 5.2.4 below. The legislative hostility intensifies. California’s State Legislature also has enacted laws voiding arbitration agreements where sponsors of arbitration agreements fail to timely pay arbitration fees. (See § 5.2.4.) Judicial hostility toward arbitration. Judges have joined legislators in evincing hostility to arbitration. California employers implementing mandatory arbitration agreements, while hoping to avoid runaway juries and eliminate annoying class actions, can run a harrowing judicial gauntlet. A judge intent on defeating arbitration has many weapons to deploy, ranging from (a) refusing to find consent to the agreement, to (b) finding agreement provisions unconscionable and non-severable, to (c) finding the employer has waived the agreement, to (d) refusing to confirm an arbitration award in the employer’s favor. Courts have also parsed arbitration agreement language to find it authorizing class arbitration, which almost no employer would ever want.
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