On October 11—his very last day to sign or veto bills—Governor Brown vetoed the much-feared Assembly Bill 465. AB 465 would have banned mandatory agreements to arbitrate Labor Code claims as a condition of employment. At least for now, employers with such arbitration programs can breathe a sigh of relief. We previously reported about AB 465 in more detail here.

Not only did Governor Brown veto the bill, he sent a strong, thoughtful message explaining the reasons for his decision.

Brown observed:

  1. The bill was far-reaching as it would make California the only state in the country to have such a prohibition.
  2. Existing California law already has protections addressing the issue of unfairness in employment arbitration agreements—as the bill’s opponents had pointed out (thank you Armendariz).
  3. The bill’s provisions likely violated the Federal Arbitration Act (“FAA”), as recent California and U.S. Supreme Court decisions have invalidated state policies that unduly impede arbitration—as the bill’s opponents also pointed out (thank you Concepcion).

As to the last point, Brown expressed concern that enacting such broad legislation would surely result in years of costly litigation and legal uncertainty—yes, he actually said that. Brown supported that concern by noting that the U.S. Supreme Court is already considering two cases arising out of California law that involve preemption of state policies under the FAA. Before signing an anti-arbitration bill, Brown wanted to see the outcome of those cases.

And with good reason! Several employer groups, anticipating the bill’s passage, had already been considering bringing legal challenges under the FAA. That fight will now have to await another day.

Notably, Brown did not foreclose the possibility of signing more pointed legislation in the future. He expressed concerns about fairness in employment disputes and noted that there is conflicting evidence about whether arbitration is fair to employees.

For now, employers can relax. But bills such as this are like those zombies on October 31: we can expect them to rise from the dead and haunt future legislative sessions.