Governor Brown Vetoes Assembly Bill Criminalizing Mandatory Arbitration Clauses

In a rare victory for employers in California, Governor Jerry Brown vetoed a much talked about law designed to end arbitration of substantially all employment disputes. Arbitration agreements have been under attack for the past several years, most recently in relation to the “#MeToo” movement, with employee advocates demonizing them as a tool to silence victims of sexual harassment. Employers, however, continue to stand by arbitration agreements as private contracts clearly protected by federal law, aimed at mitigating the costs and exposure of legal liability.

AB 3080 would have prohibited employers from making employees sign arbitration agreements covering discrimination and harassment claims as well as wage and hour claims under the California Labor Code. In vetoing the law, Governor Brown specifically cited previous similar bills, one as recently as 2015, and noted the recent developments from the U.S. Supreme Court invalidating bans on arbitration agreements as violating the Federal Arbitration Act (“FAA”). AB 3080, like similar bills before it, was premised on the theory that the FAA only governs the enforcement and not the formation of arbitration agreements, and thus, California would not run afoul of federal law by prohibiting the formation of arbitration agreements. As Governor Brown notes, this premise was explicitly rejected by the Supreme Court in the 2017 case, Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S. Ct. 1421, 1428 (2017).