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California Arbitration Agreements in Employment: What AB 51 Means for Your Rights

You’re reviewing an employment contract and notice a clause requiring arbitration if any dispute arises with your employer. Before signing, you need to understand what California law actually allows.

California arbitration agreements in employment have changed dramatically. Assembly Bill 51 (AB 51), which took effect in 2020, fundamentally restricted what employers can require. Understanding these rules protects your ability to pursue legal claims and ensures your rights aren’t waived unfairly.

This guide explains California’s arbitration agreement restrictions, your exceptions and protections, and how to challenge agreements that violate state law.

What Is Mandatory Arbitration in Employment?

Mandatory arbitration is a clause requiring employees to resolve workplace disputes through arbitration instead of court. Rather than filing a lawsuit and going to trial, you’d present your case to a private arbitrator—a neutral third party who decides the outcome.

Employers often prefer arbitration because it’s private, potentially faster, and can cost less than litigation. However, arbitration often limits your rights compared to court proceedings. You typically have fewer discovery opportunities, limited appeal options, and less public accountability.

That’s why California restricts these agreements. The state recognizes that employees often can’t truly consent to giving up their legal rights when facing job loss if they refuse to sign.

AB 51: California’s Major Restrictions on Arbitration Agreements

Assembly Bill 51 fundamentally changed arbitration agreement enforceability in California. Here’s what changed:

The Ban on Pre-Dispute Arbitration for Most Claims

AB 51 prohibits employers from requiring employees to sign mandatory arbitration agreements for disputes arising before the agreement is signed. This applies to the vast majority of employment conflicts, including:

  • Discrimination (race, gender, age, religion, disability, and more)
  • Harassment and hostile work environment claims
  • Wage and hour violations
  • Retaliation for reporting violations
  • Wrongful termination
  • Breach of contract claims
  • Harassment under California’s Fair Employment and Housing Act (FEHA)

In practical terms: if your employer asks you to sign an arbitration agreement when you’re hired or at any point during employment, that agreement cannot require you to arbitrate claims about things that happened before you signed it.

What Agreements Can Still Require

Employers can still enforce arbitration agreements that cover:

  • Post-dispute arbitration: Disputes you agree to arbitrate after the conflict actually occurs (both sides must consent)
  • Specific sectors: Certain industries have exceptions, though these are limited
  • Executive/high-level positions: Some cases have upheld agreements for employees earning above certain thresholds, though this is contested

The Key Timing Issue

The critical factor is when the dispute arose versus when you signed the agreement. If you signed an arbitration clause on your first day of work, but were subjected to discrimination in your third year, the arbitration clause cannot force you to arbitrate that discrimination claim. The dispute arose before you signed the agreement.

The PAGA Exception: Your Right to Class Actions

California has a powerful tool for holding employers accountable: the Private Attorneys General Act (PAGA). However, a major Supreme Court case created an important exception to arbitration protections.

The Viking River Cruises Decision

In Viking River Cruises, Inc. v. Morales (2022), the California Supreme Court ruled that employers can require employees to waive their right to represent other employees in PAGA claims. However, employers cannot require employees to waive their right to pursue their own PAGA penalties.

What this means in practice:

  • You retain the right to sue on your own behalf for violations of California labor laws
  • You can recover penalties for violations you personally experienced
  • However, employers can prevent you from bringing representative PAGA claims on behalf of coworkers
  • You still retain the right to participate in representative actions brought by others

This is a significant limitation but doesn’t eliminate PAGA protections entirely. You can still pursue claims for yourself.

The Unconscionability Doctrine: Challenging Unfair Arbitration Clauses

Even when arbitration agreements technically comply with AB 51, California courts can still strike them down as “unconscionable”—meaning they’re shockingly unfair.

Unconscionability has two components:

Procedural Unconscionability

This examines the process of agreeing to the contract. Courts consider:

  • Whether there was real opportunity to negotiate the terms
  • Whether the agreement was hidden in fine print
  • Whether the employee was pressured to sign without reading
  • Whether there was a significant power imbalance between employer and employee

Employment arbitration agreements are almost always procedurally unconscionable because employees have minimal negotiating power. You can’t negotiate the terms of employment—it’s take it or leave it.

Substantive Unconscionability

This examines whether the actual terms are unfairly one-sided:

  • Excessive arbitrator costs: If arbitration costs are so high that employees effectively can’t pursue claims
  • Shortened statute of limitations: If the agreement reduces time limits more than law allows
  • One-sided discovery restrictions: If the employer gets access to information but the employee doesn’t
  • Confidentiality requirements: If the agreement prevents discussing the case or outcome
  • One-sided fee-shifting: If the employee pays costs even when they win
  • Unequal remedies: If the employee has fewer remedies available than in court

California courts frequently strike down arbitration agreements for substantive unconscionability. Even if an agreement complies with AB 51, unfair terms can render it unenforceable.

What Employers Cannot Require in Arbitration Agreements

California law specifically protects certain rights that cannot be waived, even in voluntary arbitration agreements:

Protected Rights

  • Whistleblower protections: You cannot waive the right to report illegal activities
  • Labor law protections: You cannot waive rights under minimum wage, overtime, and rest break laws
  • Workers’ compensation: You cannot waive the right to file workers’ comp claims
  • Retaliation protections: You cannot waive protections against retaliation for reporting violations
  • Public policy claims: You cannot waive claims arising from fundamental public policy (like jury trial rights in discrimination cases)

Arbitration agreements that attempt to waive these protections are void and unenforceable.

How to Challenge an Arbitration Agreement

If you believe an arbitration agreement violates California law, you have several options:

Step 1: Document the Agreement and Your Objections

Gather:

  • The actual arbitration agreement text
  • Dates you signed it
  • When the dispute arose
  • Any evidence the terms are unfair (costs, restrictions, one-sided provisions)

Step 2: Understand the Timing Defense

If the dispute arose before you signed the agreement, AB 51 provides an automatic defense. The agreement is unenforceable for those claims.

Step 3: Identify Unconscionable Terms

Look for:

  • Extremely high arbitration costs
  • Restrictive discovery
  • Shortened time limits
  • Confidentiality provisions
  • One-sided fee arrangements

Step 4: Assert the Defense in Court or Arbitration

If your employer tries to enforce the arbitration agreement:

  • File a motion to stay arbitration and proceed in court
  • Argue the agreement violates AB 51 or is unconscionable
  • Request the court hear the argument before arbitration proceeds

Step 5: Consider Legal Representation

Arbitration agreement challenges involve complex legal questions. An employment attorney can evaluate your specific situation and determine the strongest arguments.

Common Mistakes Employees Make

Assuming All Arbitration Agreements Are Enforceable

Many employees believe once they sign an arbitration agreement, they’re locked into arbitration. California law provides significant protections. Never assume an agreement is binding without legal review.

Not Documenting When Disputes Arose

Keep records showing when violations occurred. If you can prove the dispute arose before signing the arbitration agreement, AB 51 protects you automatically.

Overlooking Unconscionable Terms

Don’t just check if an agreement complies with AB 51. Review the actual terms. Unfair provisions may be separately unenforceable.

Signing Without Reading

Take time to read arbitration clauses. Note anything unusual:

  • Extremely high cost provisions
  • Restrictions on evidence discovery
  • Shortened time limits
  • Limitations on remedies

Your Rights Moving Forward

California prioritizes employee rights over employer convenience. If you’re facing an arbitration agreement:

  1. Understand the timing rule: Disputes arising before you signed are protected
  2. Review the terms carefully: Look for unfair provisions
  3. Know your PAGA rights: You retain some ability to pursue claims even with PAGA waivers
  4. Seek legal advice: Employment attorneys can evaluate your specific agreement and situation

When to Consult an Employment Attorney

Consider talking to an employment lawyer if:

  • Your employer is enforcing an arbitration agreement
  • You’re unsure whether an agreement applies to your claim
  • The agreement contains unusual or restrictive terms
  • You’ve experienced retaliation for refusing to sign
  • You need to understand your specific rights

An attorney can review your agreement, determine what claims it covers, and advise on your options.

Summary

California arbitration agreements are heavily restricted. AB 51 prohibits employers from requiring employees to waive pre-dispute claims in most situations. Even agreements that comply with AB 51 can be challenged as unconscionable if their terms are unfairly one-sided.

Your rights to pursue discrimination, harassment, wage violations, and retaliation claims remain strong. Understanding these protections ensures you don’t inadvertently waive rights you’re entitled to keep.

If you’re facing an arbitration agreement you believe violates your rights, documenting the claim timing and reviewing the specific terms will help you determine your next steps.

Related Resources

For more information on related employment contract topics, see:

Note: This content is provided for informational purposes and should not be construed as legal advice. Employment law varies by situation and jurisdiction. Consult with a qualified California employment attorney for advice on your specific circumstances.