On October 13, 2019, California Governor Gavin Newsom signed California Assembly Bill 51 into law, which bans employers from requiring applicants and employees to enter into mandatory arbitration agreements governing disputes that arise under the California Fair Employment and Housing Act ("FEHA") or the California Labor Code. While employers will not be able to use voluntary opt-out clauses to avoid reach of the law, it is unclear how this law will affect voluntary arbitration agreements. The new law goes into effect on January 1, 2020, and applies only to contracts for employment entered into, modified, or extended on or after January 1, 2020.

It is very possible that the law will be challenged on grounds that it is preempted by the Federal Arbitration Act. Given the likelihood of such a challenge to the law, employers with California employees could choose to maintain the status quo and continue mandatory arbitration programs until anticipated litigation plays out, provided the employer has a complete understanding of the risks associated with noncompliance with the new law. If, on the other hand, California employers want to prepare for compliance with the new law, such employers should consider striking all mandatory arbitration agreements and voluntary opt-out clauses relating to disputes under the FEHA or the California Labor Code from their new-hire documentation and related form agreements.

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