The California legislature recently submitted a bill (AB 465) to Governor Jerry Brown that deters employers from using arbitration agreements that include a provision requiring the arbitration of claims brought against employers for violations under the California Labor Code.

AB 465 provides that any waiver of rights, penalties, remedies, forums and procedures established by the California Labor Code, including the right to file a claim with the Labor Commissioner or a civil action in court, may not be required as a condition of employment. The bill would also require that any waiver be knowing and voluntary, in writing, and expressly not made as a condition of employment. This added provision will no doubt provide another avenue for employees to challenge the waiver of Berman hearings (administrative hearings before a Deputy Labor Commissioner regarding claims of California Labor Code violations) in arbitration agreements.

Employers who seek to enforce such waivers will bear the burden of proof that they satisfied the requirements of AB 465. Employees often argue that arbitration agreements provided with offers of employment are implied conditions of such employment. Therefore, if the bill is signed into law, employers should include an express provision in their arbitration agreements that states that it is not required for employment. Otherwise, courts will likely deem signed waivers involuntary, unconscionable, against public policy and unenforceable.

AB 465 also prohibits employers from threatening, retaliating or discriminating against any person who refuses to waive his or her right to file a labor claim with the Labor Commission or in court. Applicants and employees who successfully challenge the enforceability of an arbitration agreement that requires them to arbitrate their claims under the Labor Code may potentially obtain injunctive relief (e.g., an invalidation of the agreement) and reasonable attorney’s fees. Individuals who are represented by counsel in the initial negotiation of the agreement’s terms, however, are excluded from the provisions of the bill.

If passed, AB 465 will apply to arbitration agreements entered into, altered, modified, renewed or extended on or after January 1, 2016. There is a severability provision that provides that if any particular provision of an arbitration agreement is invalidated, the other provisions in the agreement remain effective. This does not, however, save employers from the costs of enforcing the provision. There will no doubt be extensive litigation challenging FAA preemption if the bill is passed, but until the law is settled, employers should be prepared to comply with AB 465’s requirements.

Gov. Brown has until October 11, 2015 to sign or veto the bill.