Ninth Circuit Eliminates Obstacles To Enforcement Of Employment Arbitration Agreements In California

• Jurisdiction: United States,Federal,California
• Law Firm: Littler Mendelson
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Contract of Employment, Employment Litigation/ Tribunals, Arbitration & Dispute Resolution
• Author: Ms Laura E. Devane, Maury Baskin, Joseph Wientge, Jr. and Robert Friedman
• Published date: 22 February 2023

• Ninth Circuit holds the Federal Arbitration Act (FAA) preempts AB 51, which attempted to prohibit employers from requiring employees to waive, as a condition of employment, the right to litigate claims under the FEHA and the California Labor Code.
• Arbitration agreements are on an equal footing as other contracts and will be analyzed in the Ninth Circuit in accordance with FAA principles of "equal protection treatment."
• California employers can continue to use mandatory arbitration agreements for employees and new hires.

In a significant win for California employers, the Ninth Circuit Court of Appeals, in Chamber of Commerce v. Bonta,¹ affirmed a district court injunction striking down California Assembly Bill 51 ("AB 51") as preempted by the Federal Arbitration Act (FAA), after nearly three years of legal challenges. As a result, California employers may continue to implement mandatory employment arbitration agreements for employee claims for unpaid wages, discrimination, and numerous other causes of action under the Labor Code and the Fair Employment and Housing Act (FEHA).

Banning Mandatory Arbitration: California AB 51's Purpose

Congress enacted the FAA to promote agreements to arbitrate and combat the longstanding "hostility towards arbitration."² The FAA has been described repeatedly as "embodying a national policy favoring arbitration and a liberal federal policy favoring arbitration agreements."³ The U.S. Supreme Court has routinely found the FAA preempts state laws which would otherwise prevent the enforcement of arbitration agreements.⁴

Since 2015, the California legislature has engaged in a "prolonged effort to craft legislation that would prevent employers from requiring employees to enter into arbitration agreements as a condition of employment, avoiding conflict with the FAA."⁵ Following a history of vetoes of similar measures, Governor Gavin Newsom signed AB 51 into law, with an effective date of January 1, 2020. AB 51 attempted to prohibit employers from requiring employees to waive, as a condition of employment, the right to litigate claims under the FEHA and the California Labor Code. An employer that violated AB 51 could have been subject to civil and criminal penalties and found to have committed a misdemeanor. In an effort to avoid a conflict with the FAA, AB 51 stated if an employee did enter into a mandatory arbitration agreement, it would nevertheless be enforceable.⁶ The law created an "oddity" whereby an employer with a mandatory...