A recent ruling by the Ninth Circuit may prevent employers from mandating arbitration agreements as a condition of employment. But the ruling leaves the door open for employees to voluntarily enter into such agreements.
In late 2019, the California legislature passed Assembly Bill (AB) 51. AB 51 was enacted on January 1, 2020 and codified as Labor Code § 432.6. The law prevents employers from requiring employees or job applicants to enter into mandatory arbitration agreements for claims related to the Fair Employment and Housing Act and the California Labor Code. It also bars employers from retaliating against employees who refuse to enter into arbitration agreements. The law permits aggrieved individuals to bring claims for civil and criminal penalties for employer violations.
AB 51 was challenged in court by a group spearheaded by the U.S. Chamber of Commerce. The Chamber sought and received a preliminary injunction to suspend enforcement of the law until the matter could be addressed on its merits. The basis of the preliminary injunction was that AB 51 was preempted by the Federal Arbitration Act (FAA), a federal law meant to promote arbitration and prevent restrictions on such agreements. The preliminary injunction allowed employers to continue mandating arbitration agreements as a condition of employment.
On September 15, 2021, a three-judge panel of the Ninth Circuit handed down a split decision in United States v. Bonta, finding that portions of AB 51 were not preempted by the FAA and vacating the preliminary injunction. Moving forward, employers cannot mandate arbitration agreements as a condition of employment and cannot retaliate against employees who refuse to sign an arbitration agreement.
But the ruling was not all bad news for employers. The court held that AB 51 does not prevent the enforceability of existing arbitration agreements. This means employers can enforce existing arbitration agreements, even if those agreements were mandatory at the time. The court also stated that AB 51 does not bar employees from voluntarily entering into employment arbitration agreements. Finally, the court held that the civil and criminal penalties under AB 51 were preempted by the FAA.
The challenges against AB 51 are expected to continue, with both sides of the issue either requesting an en banc decision by the Ninth Circuit or appealing the matter to the United States Supreme Court. In the meantime, employers should consider:
(1) Eliminating all mandatory employment arbitration agreements moving forward.
(2) Implementing voluntary employment agreements that include clear, unequivocal statements that the agreement is voluntary and that the employee will not be retaliated against for refusing to enter into the agreement.
(3) Monitoring developments concerning AB 51.
(4) Contacting an experienced employment law attorney regarding questions and compliance with AB 51.
For more information contact:
Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law. He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.
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