Court Obliterates California's Anti-Arbitration Law

• Jurisdiction: California,United States,Federal
• Law Firm: Proskauer Rose LLP
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Contract of Employment, Arbitration & Dispute Resolution
• Author: Mr Philippe Lebel and Morgan J. Peterson
• Published date: 21 February 2023

Yesterday, a three-judge Ninth Circuit panel revisited its own 2021 order and finally struck down California's anti-mandatory employment arbitration law, Assembly Bill 51 ("AB 51"). In an opinion drafted by the former dissenting judge, Judge Sandra Ikuta, the new majority declared AB 51 was preempted by the Federal Arbitration Act ("FAA").

The statute in question, signed into law by Governor Newsom in 2019, was California legislators' third attempt to side-step the FAA. Two prior legislative enactments had been vetoed by former Governor Brown. Among other things, AB 51 made it unlawful for employers to require employees to agree to arbitration of claims pursuant to California's Fair Employment and Housing Act or Labor Code'whether as a condition of employment or receipt of any other employment benefit, even with an opt-out provision. The law also purported to impose both civil and criminal penalties for violations. As Judge Ikuta noted in yesterday's opinion, the legislators had made it obvious they were trying to evade the U.S. Supreme Court's arbitration jurisprudence by carefully carving out from AB 51's reach any agreements subject to the FAA.

In late 2019, a coalition of business groups led by the U.S. Chamber of Commerce ("Chamber") first challenged the law and were successful in getting a district court to enjoin its enforcement (as we reported here). Thereafter, in 2021, the same three judge panel issued an order holding that AB 51 was partially preempted by the FAA to the extent it purported to impose civil or criminal penalties on employers who obtained signed arbitration agreements; the panel left intact AB 51's penalties for any employer who was unsuccessful in getting an employee to sign. In a sharply worded dissent, Judge Ikuta wrote that "the majority['s opinion] abet[ed] California's attempt to evade the FAA and the Supreme Court's caselaw by upholding this anti-arbitration law on the pretext that it bars only nonconsensual agreements." Chamber of Com. v. Bonta, 13 F.4th 766, 782 (9th Cir. 2021) (Ikuta, J., dissenting). As she further explained, the former majority's "holding mean[t] that an employer's attempt to enter into an arbitration agreement with employees is unlawful, but a completed attempt is lawful. This tortuous ruling is analogous to holding that a statute can make it unlawful for a dealer to attempt to sell illegal drugs, but if the dealer succeeds in completing the drug transaction, the dealer cannot be prosecuted." Id. at...