Ninth Circuit Saves Most of California’s New Anti-Employment-Arbitration Law

by Ryan E. Abernethy

On September 15, 2021, California’s efforts against the enforcement of employment arbitration agreements continue as the Ninth Circuit reversed, in part, a district court’s conclusion that California Assembly Bill 51 (AB 51) is preempted by the Federal Arbitration Act (FAA).

AB 51 was signed into law by Gov. Gavin Newsom in October 2019. The controversial law prohibits employers from requiring employees to waive, as a condition of employment, their right to sue in court for claims arising under the California Fair Employment and Housing Act and related employment statutes.  The law also opens employers up to civil and criminal penalties for certain violations.

In December 2019, days before the law was to take effect, business groups filed a lawsuit contesting the enforcement of the Act. Judge Kimberly Mueller of the Eastern District of California issued a temporary restraining order barring AB 51 from going into effect, and on February 7, 2020, enjoined enforcement of the law as to arbitration agreements covered by the FAA. California appealed the district court’s ruling.

In a split 2-1 decision, the Ninth Circuit panel reversed, in part, the district court’s conclusion and ruled that California can require all employment arbitrations be “voluntary and consensual” and found that AB 51 does not unfairly target arbitration agreements or nullify their enforcement in violation of the FAA.

But the Panel affirmed the district court’s determination that the civil and criminal penalties associated with AB 51 were preempted. “The imposition of civil and criminal sanctions for the act of executing an arbitration agreement directly conflicts with the FAA and such an imposition of sanctions is indeed preempted,” the Panel said.

The panel vacated the district court’s preliminary injunction enjoining AB 51’s enforcement and remanded for further proceedings.

The business groups are expected to appeal the decision to the U.S. Supreme Court which has previously chided California for its hostility towards the enforcement of arbitration agreements.

Stay tuned.