Mandatory Employment Arbitration Uncertainties Following a New Ruling From the Ninth Circuit Court of Appeals

The future of mandatory employment arbitration in California remains uncertain following a new ruling from the Ninth Circuit Court of Appeals this week.

It has been a longstanding practice of countless California employers to require their employees’ execution of an arbitration agreement at the outset of employment. This practice was ostensibly halted by the enactment of Assembly Bill 51 in 2019. Generally, AB 51 prohibited mandatory arbitration in the employment context, and it established both civil and criminal penalties for violations. The law was immediately challenged in court by numerous business groups, notably the U.S. Chamber of Commerce.

In early 2020, a ruling of the U.S. District Court for the Eastern District of California effectively halted the enforcement of AB 51. The Court there found that AB 51 was preempted by the Federal Arbitration Act (FAA), and on that basis issued a preliminary injunction against enforcement of the California law. That ruling was appealed to the Ninth Circuit Court of Appeals.

On September 15, 2021, the Ninth Circuit issued its decision in the matter of Chamber of Commerce v. Bonta, reversing in part the lower Court’s decision. In this new ruling, the appellate court has now held that AB 51 is not preempted by the FAA, and is therefore enforceable as to its prohibition against mandatory employment arbitration. Curiously, however, the Court also held that, while California may prohibit the formation of mandatory employment arbitration agreements, those agreements nonetheless remain enforceable under Federal law. The Court also struck the civil and criminal penalty provisions of AB 51. Finally, the Court lifted the existing injunction, meaning that AB 51 is once again in force, albeit largely stripped of its enforcement mechanisms.

What this means: As of today, California law once again prohibits mandatory arbitration as a condition of employment. While prohibited, however, the agreements may nonetheless be enforceable. This confusing decision brings no further certainty to the ultimate question of whether California employers may require arbitration of disputes arising in the workplace. It is all but certain that the matter will proceed from here to the U.S. Supreme Court. The final resolution of this question is a long way off. In the interim, employers should consult directly with their employment counsel for guidance on specific policies and agreements.