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California is casting uncertainty on the employer’s ability to implement mandatory arbitration agreements on employees. In October 2019, Governor Newson signed Assembly Bill No. 51, which would apply to employment contracts entered, modified, or extended on or after January 1, 2020. This bill created Labor Code Section 432.6, banning mandatory arbitration agreements as a condition of employment in California. This would work around the Federal Arbitration Act, which requires courts to enforce arbitration agreements, preempting the state laws that stood in its way. Critics argue that the process favors employers and discourages prospective employees from bringing legal claims. On the other hand, proponents of the FAA have said it provides an efficient and cheaper alternative, benefiting both workers and employers. The Eastern District Court issued a restraining order, and preliminary injunction, finding it violated the FAA. The court upheld the bill. The court reasoned that the FAA protects enforcement of arbitration agreements but not involuntary and mandatory arbitrate agreements. Previously signed agreements may not be invalidated by the bill. Instead, Section 432.6 focuses on “pre-agreement” conduct, which is not subject to FAA law. Additionally, the bill regulates “employer conduct,” not agreement formations, and therefore does not conflict with the FAA. The outcome is that mandatory arbitration agreements are banned yet enforceable.

This post was originally published on the Cardozo Journal of Conflict Resolution website on May 7, 2023. The original post can be accessed via the Archived Link button above.