Voidable Employer Agreements

A “voidable” agreement is one that may appear at the outset to be capable of being enforced, however, it can thereafter be attacked, invalidated, nullified, deemed not binding, void and unenforceable. In contrast, a “void” agreement from the beginning cannot be legally enforced.

On October 13, 2019, the governor signed Assembly Bill 51, to be effective January 1, 2020. Pursuant to this new legislation and thereafter, a California employer may NOT condition pre-employment, a promise of continued employment, &/or the receipt of any employment related benefit or additional compensation, on an employee giving up her/his right to pursue a legally enforceable claim, such as that which can be brought under the California employment discrimination law, and certain other employment laws in full or part, in any administrative or court proceeding. The new law says that any agreement that conditions employment on agreeing to arbitrate employment related disputes is unenforceable.

Hence, any existing contract or agreement that is modified or extended, on and after January 1, 2020, in which an employer requires an employee to waive the right to bring a claim in the court system, and not exclusively by arbitration, must be a matter of actual voluntary consent, and not by signing an agreement that is tantamount to coercion. It is likely that when an employee has a genuine choice, (s)he will not agree to bind themselves to arbitration in advance.

Those in support of past mandatory arbitration clauses in agreements claimed it saved the parties time and money and, therefore, was less expensive, more efficient, and necessary for employers to resolve disputes through arbitration and not in the (overburdened) court system.

On and after 1/1/20, a major issue that arises in the enforcement of an arbitration provision of a contract or agreement is whether both sides in a dispute agree to this method of resolving a dispute after the dispute arises, and the parties then have an opportunity to evaluate their individual rights and own best interests for resolving a claim or dispute. This is another way of requiring an arbitration agreement to be entered into knowingly and voluntarily, and not as a condition of employment. 

Notwithstanding the above, Assembly Bill 51 raises an issue whether its applicability is invalidated, &/or is otherwise unenforceable because it is in conflict with the Federal Arbitration Act [FAA]. In this regard, the U.S. Supreme Court has held the FAA bars a state from passing a law that rejects, limits or marginalizes arbitration agreements. Because a state law cannot conflict with federal law, therefore,  the applicability of California AB 51 will be subject to legislative amendment, and/or potential court action by one or more employee unions, a class action lawsuit, etc.

In summary, the conclusion one can reach from AB 51 is that arbitration agreements are “voidable,” but not necessarily or automatically void.

 

 

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