February 17, 2023
Ruling on the Federal Arbitration Act vs Assembly Bill 51
Yesterday, the US Court of Appeals for the Ninth Circuit panel ruled that the Federal Arbitration Act (FAA) preempts Assembly Bill 51, a 2019 California measure that prohibited employers from requiring job applicants or workers to sign arbitration agreements, in its entirety.
The Chamber of Commerce v. Bonta decision signals that state legislatures may be powerless to prevent companies from conditioning employment on giving up the right to go to court over workplace disputes. California employers can now enforce employees to sign arbitration agreements as a condition of employment since the federal appeals court has struck down the unique state law that limited the use of such workplace contracts.
Background on the Case
For background, in 2020, a District Court judge granted a preliminary injunction barring enforcement of AB 51. The decision was appealed to the Ninth Circuit. On September 15, 2021, two of the three judges on the panel originally concluded the FAA did not completely preempt AB 51 to the extent that AB 51 seeks to regulate an employer’s conduct prior to executing an arbitration agreement. The majority held that the FAA preempts AB 51 only to the extent that AB 51 seeks to impose civil and criminal penalties on employers who have successfully executed arbitration agreements governed by the FAA. However, following the Supreme Court decision in Viking River Cruises v. Moriana, the Ninth Circuit panel withdrew the September 2021 opinion and granted panel rehearing resulting in yesterday’s about-face opinion.