California Again Attempts To Outlaw The Mandatory Arbitration Of Employment Disputes

• Published date: 27 September 2021
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Employment Litigation/ Tribunals, Arbitration & Dispute Resolution
• Law Firm: Snell & Wilmer
• Author: William R. Hayden

California has a long history of animosity towards the arbitration, rather than litigation, of disputes arising in both the employment and consumer context. The most recent effort by the California State Legislature to prevent employers from including arbitration provisions as a condition of employment is referred to as "AB 51." This current legislative effort, however, is merely the continuation of an ongoing effort by the California State Legislature to outlaw mandatory arbitration of employment disputes.

In 2015, the California State Legislature passed a bill banning employers from requiring arbitration agreements as a condition of employment and rendered unenforceable any such arbitration provision. That attempted legislation was vetoed by the then California Governor, who correctly noted that such a ban on mandatory arbitration had been "consistently struck down in other states as violating the Federal Arbitration Act" ("FAA").

Undeterred, the California State Legislature again enacted a bill in 2018 that would have had the same effect of prohibiting the mandatory arbitration of employment disputes. Again, the then California Governor vetoed the proposed legislation citing "clear" direction from the U.S. Supreme Court that such a ban on mandatory arbitration is impermissible pursuant to the FAA.

Twice vetoed but still undeterred, the California State Legislature enacted AB 51 to be effective January 1, 2020. Taking a slightly different approach, AB 51 requires that to be enforceable, any employment arbitration provision must be voluntarily agreed to by each impacted employee, as opposed to being unilaterally implemented as a term and condition of employment by the employer. Prior to the effective date of AB 51, numerous industry groups in California commenced an action in federal court seeking to enjoin the enforcement of AB 51. The federal district court granted the requested injunction, finding that AB 51 is preempted by the FAA.

On appeal to the Ninth Circuit, (Chamber of Commerce v. Bonta, No. 20-15291) (9^th Cir. 2021), in a split decision, the majority rationalizes its way to concluding that AB 51 is not really an attempt to prohibit the mandatory arbitration of employment disputes, which it obviously is. The well-reasoned dissenting opinion traces the long history of the U.S. Supreme Court reversing such state anti-arbitration efforts, many arising in the state of California. For example:

• The FAA preempts any state law that stands "as an...