Mandatory Arbitration Agreements – Now Legal?
In February, a three-judge Ninth Circuit panel revisited and struck down California’s ban on mandatory employment arbitration agreements, which was part of AB 51, enacted in 2019. This panel declared AB51 was preempted by the Federal Arbitration Act (FAA).
The statute in question, AB 51, was signed into law by Governor Newsom in 2019. This was California legislators’ third attempt to do an end run around the FAA. Twice prior, similar attempts to enact similar statutes were vetoed by Governor Brown.
Basically, the attempt to ban mandatory employment arbitration agreements was designed to give more power to employees…and plaintiff attorneys. The law contained provisions to impose both civil and criminal penalties for violations if employers attempted to make arbitration agreements a mandatory condition of employment.
Can You Follow the Bouncing Ball?
Sparing you all the details, this law has been bounced back and forth between the courts since 2019, while business groups such as the US Chamber of Commerce filed lawsuits to prevent its enactment. In 2021 it appeared that the CA legislators had won and that California was successful in side-stepping the FAA.
However, in 2022, the US Chamber again challenged AB51 and the three-judge panel of the Ninth Circuit reversed its earlier opinion and in February of 2023, and held the FAA preempts not only state laws affecting the enforceability of executed arbitration agreements, but also state laws that discriminate against the formation of arbitration agreements.
Fighting Chance?
Since this was only a three-judge panel, California may still seek full en banc (full court) review, though there is no guarantee AB 51 would fare better before the full Ninth Circuit court. Even if California could obtain its preferred outcome before the full Ninth Circuit, most experts believe that AB 51 would not survive a match with the U.S. Supreme Court.
The Big Question
In light of this new decision, employers may now be free to resume requiring employees to execute arbitration agreements as a condition of employment—with or without the option to opt-out. However, any such agreements would remain subject to normal contractual scrutiny. It is highly recommended that employers legal consult counsel before considering mandatory arbitration agreements and certainly when designing arbitration programs and/or agreements.
Ready for More Info?
Infinium HR is considering a webinar with our labor law attorney partners in the coming months if we have enough interest. If you are interested in hearing more from an attorney on this subject, please click on the link below and let us know if you’re interested.
Thank you and please contact the HR team at Infinium HR for any questions.