Through new legislation and shifting enforcement priorities, California continues to challenge common workplace practices, including collectible wage judgments and binding employment agreements. Employers must understand how new rules on wage judgment penalties, stay-or-pay provisions, and arbitration agreements affect risk and strategy.
Below is what employers need to know for 2026.
Wage Judgment Enforcement Is Getting
Assembly Bill 51 (“AB 51”) prohibits employers from requiring employees to execute arbitration agreements as a condition of employment. After being signed by California Governor Gavin Newsom on October 10, 2019, AB 51 was set to go into effect on January 1, 2020; however, on December 30, 2019, the Honorable Kimberly J. Mueller, Chief Judge
If your company uses a class action waiver in your employment agreements and you are located in Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, the Northern Mariana Islands, Oregon, or Washington, you are out of luck. Thanks to a recent decision from the Ninth Circuit Court of Appeals (which has jurisdiction over the aforementioned areas), that waiver is no longer enforceable.
Recently, the Court ruled in Morris v. Ernst & Young, LLP, No. 13-16599, 2016 WL 4433080 (9th Cir. Aug. 22, 2016), that an employment agreement that requires employees to pursue legal claims against their employer in “separate proceedings” and in arbitration violates federal law. In that case, two employees sued Ernst & Young alleging they were misclassified as exempt employees under the Fair Labor Standards Act and were owed overtime pay. The trial court compelled individual arbitration, pursuant to the “separate proceedings” in arbitration demanded by the employment agreement the two employees signed upon hire. The Ninth Circuit reversed.
Employees are guaranteed the right to “engage in . . . concerted activities for the purpose of . . . mutual aid or protection” by the National Labor Relations Act. The Court held that protection for “concerted activities” means that employers cannot require employees to waive their right to pursue legal claims as a class action.
Continue Reading Class Action Waivers in Employment Agreements Are No Longer Enforceable in the Ninth Circuit
In DIRECTV, Inc. v. Imburgia, a decision released this week, the United States Supreme Court rejected the California Court of Appeal’s interpretation of a binding arbitration provision that would have rendered unenforceable a class arbitration waiver provision. In doing this, the Supreme Court once again affirmed the primacy of the Federal Arbitration Act (“FAA”) and the invalidity of attempts by state courts to limit the enforceability of class arbitration waiver provisions.
DIRECTV involved a claim by consumers that DIRECTV’s early termination fees violate California law. The service agreement at issue in the action provided that any claims would be resolved by binding arbitration. The agreement contained a class arbitration waiver but provided that if the “laws of your state” made the waiver unenforceable, then the entire arbitration provision “is unenforceable.” The lawsuit was filed in 2008, prior to the United States Supreme Court’s 2011 decision in AT&T Mobility, LLC v. Concepcion holding that the FAA preempted California case law deeming class arbitration waiver provisions unenforceable.Continue Reading United States Supreme Court Once Again Rejects California’s Attempt To Void Class Arbitration Waivers
* October 11, 2015 Update: Governor Brown announced he has vetoed AB 465
On August 27, 2015, the California Assembly approved AB 465. The bill, which was approved by the California Senate on August 24, would prohibit California employers from requiring most individuals to enter into arbitration agreements as a condition of their employment.
On October 28, 2014, the National Labor Relations Board (“NLRB”) issued its decision in Murphy Oil USA Inc., once again attempting to prohibit employers from requiring employees to enter into agreements to arbitrate employment disputes if those agreements preclude collective or class action litigation. As we have blogged about in the past, this new decision runs contrary to an overwhelming majority of federal district and appellate court decisions rejecting and criticizing the Obama NLRB’s previous attempt to so extend the law. A copy of the Murphy Oil USA decision can be found here.
In Murphy Oil, the NLRB split 3-2 along party lines, with the majority finding that gas station chain Murphy Oil’s arbitration agreements were unlawful. In so doing, the NLRB reaffirmed its controversial January 2012 DR Horton ruling, where the Board ruled that such agreements conflict with employees’ rights to engage in concerted activity under the National Labor Relations Act. The Fifth Circuit Court of Appeals refused the enforce the Board’s order, and the NLRB declined to seek review from the U.S. Supreme Court. In what some might say is refusing to take “no” for an answer, the NLRB is trying to resurrect its DR Horton decision.Continue Reading NLRB Attempts to Make an End Run Around Courts Invalidating its Rulings on Arbitration Agreements
Earlier this week, a three judge panel of the Fifth Circuit Court of Appeals issued its long-awaited decision in DR Horton Inc. v. NLRB. As expected by most labor lawyers, including us, the Fifth Circuit (with one judge dissenting) overruled the National Labor Relations Board’s dramatic extension of the law, that employers could not require employees to enter into agreements to individually arbitrate employment disputes, precluding collective or class action litigation. In DR Horton the NLRB had concluded that such agreements conflicted with employees’ rights to engage in concerted activity under the National Labor Relations Act (the “NLRA”) — a conclusion that had since been rejected by almost every court to face the issue. The Fifth Circuit’s decision does contain a cautionary note for employers: an arbitration agreement may not appear to bar an employee from filing charges with the NLRB.
DR Horton
DR Horton is a home builder with operations throughout the United States. Beginning in 2006, DR Horton required all its employees to enter into a “Mutual Arbitration Agreement.” The agreement precluded civil litigation between the parties, requiring that all disputes be submitted to arbitration. Most critically, the agreement also barred any form of collective or class action proceeding. In 2008 the underlying plaintiff filed a putative class action lawsuit, contending that he had been misclassified as an exempt managerial employee in violation of the Fair Labor Standards Act. When DR Horton responded by insisting on individual arbitration pursuant to the agreement’s bar of collective actions, the plaintiff filed unfair labor practice charges with the Board.Continue Reading Foiled Again: DR Horton Overturned (But Be Careful How You Phrase Your Arbitration Agreement)
Just last week, in the case GameStop Corp., a National Labor Relations Board (NLRB) administrative law judge applied recent Board precedent and ignored contrary cases from federal courts to find an employer’s arbitration agreement was unenforceable because it waived the right of employees to bring class or collective actions. While the decision has yet to be approved by the NLRB itself (parties can appeal ALJ decisions to the NLRB), it illustrates the continuing tension in this area between the NLRB (which disfavors class action waivers in employee arbitration agreements) and the federal courts (which favor them).
As we have reported, U.S. federal courts continue to hold that employees may enter into arbitration agreements in which they waive the right to file class or collective action claims. The U.S. Supreme Court put its stamp of approval on such waivers in 2011 in the blockbuster case AT&T v. Concepcion, holding that the enforceability of arbitration agreements was governed by the Federal Arbitration Act (FAA), which preempted any state law purporting to regulate arbitration agreements, including arbitration agreements with class action waivers. Building on a decades-long line of cases steadily increasing support for the concept of arbitration and similar alternative dispute resolution (“ADR”) methods for resolving litigation, Concepcion also held decisively that arbitration agreements could include waivers by the parties of the right to bring lawsuits as class actions. The U.S. Supreme Court has re-affirmed Concepcion in subsequent decisions.Continue Reading Chasm Continues To Widen, For Now, Between NLRB and Federal Courts On Enforceability Of Class Action Waivers In Employment Agreements
In the recent case Hatkoff v. Portland Adventist Medical Center, the Oregon Court of Appeals affirmed enforcement of a company arbitration provision in an employee handbook requiring that a former employee bring his employment discrimination claims in binding arbitration. The Court’s opinion offers a straight-forward application of the law regarding the enforceability of arbitration agreements
In DR Horton, a decision issued on January 3 and applicable to most private sector employers, whether unionized or not, the National Labor Relations Board (NLRB) held that federal labor law prevents employers from requiring their employees, as a condition of employment, to agree to broad waivers that would deny their right to pursue employment-related