I have been waiting, patiently, for resolution of the fate of Assembly Bill 51 (“AB 51”), which restricts an employers’ ability to require arbitration to resolve any disputes with their prospective or hired employees. In 2019, California passed AB 51, which made it criminal for an employer to require applicants or employees, as a condition of employment, continued employment, or the receipt of any employment benefit, to waive any rights, forum, or procedure established by the California Fair Employment and Housing Act (“FEHA”) and the California Labor Code. An intended goal of the legislation was to avoid preemption by the Federal Arbitration Act (“FAA”) by making freely executed arbitration agreements in the employment context enforceable.
AB 51 was to take effect on January 1, 2020, but two days before, the U.S. District Court issued a temporary restraining order and then a preliminary injunction, in response to a complaint brought by trade associations and business groups, placing a hold on the new law. The District Court decided that AB 51 discriminated against the free use of arbitration agreements and was preempted by the FAA. The State of California appealed that ruling regarding preemption.
In 2021, a divided Ninth Circuit panel held the FAA does not completely preempt AB 51. The U.S. Chamber of Commerce filed a petition for rehearing en banc, which the Ninth Circuit deferred pending the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana. The U.S. Supreme Court issued the decision in Viking on June 15, 2022. On August 22, 2022, the Ninth Circuit withdrew its prior opinion and granted a panel rehearing in response to the Chamber’s request.
Fast forward to this month, the Ninth Circuit issued a decision which provides some clarity. The Court determined that the burden imposed on the formation of arbitration agreements by AB 51 was severe, and that AB 51 was preempted by the FAA. The Court noted that California law did not otherwise restrict employers from including non-negotiable terms in virtually any other agreements with employees, and that mandatory arbitration provisions in employment contracts would otherwise be subject to the same rules regarding unconscionability and enforceability as other contracts. The Court upheld the preliminary injunction against AB 51.
At this time, an employer is allowed to require that employees or prospective employees sign a carefully worded arbitration agreement as a condition of employment. Contact us for assistance with your arbitration agreements.