In a rare win for California employers the Ninth Circuit Court of Appeals recently ruled that AB 51 could not be enforced in California because it unduly burdened the right to agree to arbitration in violation of the Federal Arbitration Act (“FAA”).
AB 51 is the California statute that, in effect, prevented employers for asking employees to sign mandatory arbitration agreements as a condition of employment. Governor Newsom signed AB 51 into law in October 2019, with an effective date of January 1, 2020. Immediately after AB 51 was signed, the California Chamber of Commerce sued to invalidate the law, claiming that it would operate as a burden on the right to arbitration and, thus, would violate the FAA. The district court agreed with that argument and, on December 30, 2019, blocked AB 51 from becoming law. We blogged about the Court’s decision here.
The State of California appealed that decision to the Ninth Circuit. Now, more than 3 years later, a panel of the Ninth Circuit has upheld the lower court’s order – effectively killing AB 51 for now, unless California files an appeal to the full Ninth Circuit or to the U.S. Supreme Court.
So, what’s the take-away? California employers can continue to ask employees to sign mandatory arbitration agreements a condition of employment.
But, employers need to remember that arbitration agreements – like all contracts in California – are subject to defenses that can render them legally unenforceable. Under California law, an arbitration agreement that is both procedurally unconscionable and substantively unconscionable is not enforceable. What makes an arbitration agreement either procedurally or substantively unconscionable is a complex legal question that requires an analysis of about a dozen different factors – an analysis that is beyond the scope of this post. Suffice to say that, if you are an employer and you either are using an arbitration agreement or are considering using one, you should consult with an employment lawyer. That’s your best option for ensuring that you have an enforceable arbitration agreement, should you end up needing it.
You can read the Ninth Circuit’s decision in Chamber of Commerce v. Bonta here.