In 2019, AB 51 is Passed
As readers of this blog know, in 2019 the California legislature passed AB 51, a new law that added Section 432.6 to the California Labor Code. This new statute made it illegal for an employer to require an applicant or employee, as a condition of employment, to sign an arbitration agreement waiving the right to sue the employer in court. This new statute also imposed civil and criminal penalties on employers who violate it.
In 2020, AB 51 is Blocked from Becoming Law
Just days before this new Labor Code Section 432.6 was to go into effect, the federal district court granted a preliminary injunction prohibiting the State of California from implementing the new law on the grounds that it violated the Federal Arbitration Act (“FAA”). We blogged about this development here.
As a result, California employers could ignore the new law and continue forcing employees to sign mandatory arbitration agreements. The State of California appealed that lower court’s decision and asked the 9th Circuit U.S. Court of Appeals to remove the injunction and allow the State to start enforcing Labor Code Section 432.6.
The 2021 Decision in Chamber of Commerce v. Bonta
Last week, the 9th Circuit narrowly ruled in the State’s favor in Chamber of Commerce v. Bonta and partially removed the injunction, thus reinstating the ban on employment arbitration agreements. But the court allowed the injunction to remain on that part of the statute that imposed civil and criminal penalties on employers who violated it, but only as applied to signed arbitration agreements covered by the FAA.
Wait…what? So, an employer cannot ask an employee to sign an arbitration agreement as a condition of employment…but, if an employer ignores that and actually asks an employee to sign such an agreement, there can be no civil or criminal penalties imposed on that employer if the employee signs. What if the employee does not sign…then what? How does any of this make any sense, you ask? The dissent asked that same question and wrote a blistering decision attacking the head-scratching illogic of the majority’s opinion.
The Baffling Bonta Paradox
As a result of the Bonta decision, California employers face a baffling paradox: if an employer presents an arbitration agreement to an applicant or employee on or after January 1, 2020, and (1) if that applicant or employee signs the agreement voluntarily, the employer has technically violated Labor Code Section 432.6, but that employer cannot suffer any civil or criminal penalties for having done so, due to the injunction that was left undisturbed by the Court, but (2) if that applicant or employee refuses to sign the agreement, and if the employer then refuses to hire the applicant or terminates the employee for not having signed it, then the employer is subject to civil and criminal liability, because there’s no signed agreement and, thus, no more injunction and, thus, the civil and criminal penalties from California Labor Code Section 432.6 can be applied.
Does your head hurt, yet? You’re not alone.
What Should California Employers Do Now?
Given the fact that the 9th Circuit’s decision was a narrow one (by a vote of 2-1), and given the strange paradox created by the majority’s opinion, we expect that the decision will be appealed either to the full 9th Circuit or to the U.S. Supreme Court.
Until then, however, California employers using mandatory arbitration agreements should review their agreements (or, better yet, have their counsel review those agreements) for language stating clearly that (a) the agreement was not a condition of employment (meaning that the applicant would still be hired even if he/she/they refused to sign, or the employee would not be fired for refusing to sign); (b) the applicant or employee’s signature was completely voluntary and free from any threats, duress, or coercion; and (c) allowed the employee a certain number of days after voluntarily signing to change his/her/their mind and opt out of the agreement.
If an employer has, since January 1, 2020, refused to hire an applicant or fired an employee who refused to sign the employer’s arbitration agreement, the employer should engage counsel to review that situation.
You can read the full opinion in Chamber of Commerce v. Bonta here.
