Mandatory Arbitration is Alive and Well

A big win for California employers was announced February 15, 2023, when the Ninth Circuit Court of Appeals in Chamber of Commerce of the United States of America v. Bonta found that the Federal Arbitration Act (FAA) preempts California legislature’s attempt to prohibit employers from requiring employees to arbitrate employment disputes by enacting AB 51.

This is important because arbitration agreements can facilitate the prompt resolution of employment-related disputes, and they provide an effective alternative to the lengthy and costly (for both employers and employees) process of litigation. The February 15, 2023 Bonta decision means that California employers can continue to implement arbitration agreements as a condition of employment.

How Did We Get Here?

It’s been a long and winding road.

In 2019, Governor Newsom signed AB 51 into law, and it was set to go into effect January 1, 2020. Among other things, AB 51 purported to ban employers from requiring applicants and employees as a condition of employment to sign arbitration agreements waiving their right to pursue Labor Code or California Fair Employment and Housing Act (FEHA) claims in court.

The U.S. Chamber of Commerce and several other business groups filed suit for a preliminary injunction in federal district court, arguing the FAA preempted AB 51 and requested a temporary restraining order to halt enforcement while litigation was ongoing. Two days before AB 51 was set to go into effect, the temporary restraining order was granted. On January 31, 2020, the district court granted the preliminary injunction finding that AB 51 violated the FAA as it imposed a higher consent requirement and interfered with the FAA’s goal of promoting arbitration by threatening civil and criminal penalties against employers.

California appealed the district court’s decision to the Ninth Circuit. In a ruling in September 2021, a three-judge panel of the Ninth Circuit reversed the district court’s decision in part, holding that the FAA did not preempt AB 51 to the extent it sought to regulate an employer’s conduct prior to executing an arbitration agreement.

The Chamber of Commerce then requested that the Ninth Circuit reconsider its September 2021 decision. Following a closely watched decision in Viking River Cruises v. Moriana, the Ninth Circuit withdrew its original decision in favor of a rehearing.

The Result

The Ninth Circuit’s February 15, 2023 decision in Bonta affirmed the district court’s grant of a preliminary injunction and held the FAA preempted AB 51 because it “stands as an obstacle to [further Congress’s policy of encouraging arbitration].”

What’s Next?

This may not be the last word, but for now, the latest Ninth Circuit decision in Bonta adds leverage to the position that employers can insist on mandatory arbitration agreements to resolve most employment-related disputes. We will keep you posted.

As always, employers should consult with legal counsel to discuss further.