On September 30, 2014, California Governor Jerry Brown signed AB 2617. This new law prohibits mandatory, pre-dispute arbitration agreements in contracts for goods and services, to the extent the agreement purports to waive rights provided by California Civil Code 51.7 (the “Ralph Civil Rights Act”) and/or 52.1 (the “Bane Civil Rights Act”). No person can be required to waive these rights — including the right to bring a civil action for violation of these statutes — as a condition of entering into a contract for goods and services. The new law applies to contracts entered into, modified, renewed or extended on or after January 1, 2015.
Any person or entity seeking to enforce an arbitration agreement waiving either/both of these statutes will bear the burden of proving that the waiver was entered into (1) knowingly and voluntarily, and (2) not as a condition of entering into the contract.
Although AB 2617 does not on its face apply to employees, it likely applies to independent contractor agreements given that those agreements are contracts for “services.” In addition, you can expect plaintiff’s lawyers to argue that written employment agreements are also contracts for “services,” thus rendering mandatory arbitration clauses potentially illegal in employment agreements to the extent they try to force arbitration of rights protected by Civil Code §51.7 and/or §52.1.
However, the U.S. Supreme Court has held that the Federal Arbitration Act prohibits states from enacting laws that unduly restrict arbitration. It is therefore not clear whether this new law will ultimately survive legal challenge. We’ll have to wait for lawsuits to be filed and courts to issue rulings before we have more clarity. Stay tuned!
You can read the full text of the new law here.