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Will California’s ban on mandatory arbitration hold up in court?

Assembly Bill 51, which goes into effect on Jan. 1, prohibits employers from requiring, as a condition of employment, that their employees agree to arbitrate all disputes. Companies and employees can still voluntarily enter into arbitration agreements, but employees can’t be required to sign them. When they choose not to sign, the employer cannot retaliate. The law does not invalidate existing arbitration agreements.

Now, the U.S. Chamber of Commerce and a number of other business groups have filed a federal lawsuit to block the law. They claim that the law is an attempt to “undermine the Federal Arbitration Act” and that it is preempted by that Act. Moreover, they claim that it could flood the courts with litigation.

Supporters of the law argue that arbitrators are, too often, incentivized to rule in favor of business. This is because they are paid privately, and only businesses can be repeat clients.

In addition, supporters argue that, because arbitration is private and confidential, allowing it in civil rights cases like discrimination and harassment has allowed companies to shield bad actors from public view. This has allowed companies to keep abuses out of the limelight, reducing the incentive to ensure that those abuses end.

They say the Federal Arbitration Act does not preempt AB 51 because AB 51 regulates the bargaining process, not arbitration agreements themselves.

The bill’s sponsor, Assemblywoman Lorena Gonzalez of San Diego, points out that the bill was aimed at industries where forced arbitration has become commonplace. These include the hospitality, food service and retail industries, among others.

“When both parties choose arbitration freely, it can be a highly effective tool. But it doesn’t work when corporations say you won’t be hired unless you sign away your rights,” Gonzalez told reporters in an email.

Arbitration has become extremely popular after a series of U.S. Supreme Court decisions that have supported it, even when agreeing to arbitrate is a condition of employment. The Economic Policy Institute estimates that 53% of non-union employers in the private sector mandate arbitration of disputes with employees.

The case is before the U.S. District Court for the Eastern District of California. If the judge makes a preliminary finding in favor of the business groups challenging the law, she could issue an injunction preventing it from going into effect.

Do you think employers should be able to force employees to give up their right to sue in public court when they experience discrimination, harassment, or another employment law violation?