Riding the Arbitration Agreement Wave: Ninth Circuit Blocks California AB 51
Recently the Ninth Circuit issued an opinion in Chamber of Commerce et al. v. Bonta et al., where a divided court ruled that the Federal Arbitration Act (“FAA”) preempted California law which prohibited employers from requiring job applicants or workers to sign an arbitration agreement (California AB 51).
As many California employers recall, AB 51 was passed in 2019 to bar employers from requiring an employee or applicant to enter into an arbitration agreement as a condition of their employment. When the law challenged by various trade associations and business groups, the Ninth Circuit initially upheld AB 51 saying it only criminalized contract formation. However, shortly thereafter the Ninth Circuit withdrew its decision and granted a rehearing on the issue.
In its recent ruling, the Ninth Circuit reviewed Supreme Court precedent and ultimately ruled that state laws that burden or deter the formation of arbitration agreements conflict with the FAA.
So, California employers are free to start using arbitration agreements, right? Technically yes but proceed with caution. The AB 51 wave has yet to break as the State may appeal the ruling either to the Ninth Circuit en banc, or the U.S. Supreme Court. Further the Ninth Circuit cautioned in its opinion that
mandatory arbitration agreements are unenforceable if they are procedurally or substantively unconscionable.
Please contact us prior to presenting any arbitration agreement to an employee or applicant as we can draft and/or review the agreement to ensure compliance with current law.
