Employment Arbitration Agreements in the Spotlight Again

The Ninth Circuit Court of Appeals recently issued a ruling that has caused concern among private employers who use mandatory arbitration agreements as a condition of employment.

Background

In October of 2019, Governor Newsom signed AB 51 into law, which prohibited employers from requiring job applicants or current employees to enter into arbitration agreements as a condition of their employment. A coalition of business groups filed United States Chamber of Commerce, et al. v. Bonta in the district court for the Eastern District of California, contending that the Federal Arbitration Act (“FAA”) preempted AB 51 and was thus unenforceable. A district court stayed AB 51 in December of 2019.

The Ninth Circuit Decision

On September 15, 2021, the Ninth Circuit ruled on a 2-1 basis that AB 51 is only partially preempted by the FAA. Specifically, the majority ruled that the portions of AB 51 that effectively precluded employers from using mandatory arbitration agreements as a condition of employment are not preempted by the FAA. The majority however also ruled that the criminal and civil penalties tied to the violation of AB 51 are preempted by the FAA. A strong dissent argued that the majority misinterpreted the broad preemptive effect of the FAA and pointing out that the issue will ultimately have to be decided by the U.S. Supreme Court.

Current Status and Next Steps

For procedural reasons, the stay on AB 51’s enactment remains in place until September 29, 2021. This means, as of now, past arbitration agreements are still in effect and new ones can be entered into. It is also very likely that the business groups will seek rehearing by the full Ninth Circuit and/or appeal to the United States Supreme Court for review. Assuming they do, the stay on AB 51’s enactment should remain in effect while the appeal proceeds. Given this procedural situation, employers – at least for now – can continue to require arbitration agreements for both existing employees and new hires. The situation should become more clear in the coming weeks, at which time we will reassess employers’ options. For more information and to discuss what is right for you at this point, contact Meyers Nave attorneys.