The Ninth Circuit gave California employers a belated Valentine’s Day present by upholding the District Court’s injunction against enforcement of California Assembly Bill 51 (“AB 51”) because it inhibited arbitration contrary to the Federal Arbitration Act’s (“FAA”) policy of encouraging arbitration of disputes.  

In an attempt to avoid federal preemption, AB 51 provided that employment arbitration agreements would be enforced but it created a criminal offense and civil liability against employers who required existing employees or applicants for employment to consent to arbitration as a condition of employment. Chamber of Commerce v. Bonta relied on Supreme Court precedent that concluded that states’ rules burdening the formation of arbitration agreements, or making arbitration agreements more difficult to enforce, ran afoul of the FAA. Chamber of Commerce v. Bonta concluded that AB 51 discouraged the formation of arbitration agreements because the criminal penalties and civil liability presented a severe burden to the formation of arbitration agreements, all antithetical to the Federal policy favoring arbitration. As a result, it held that AB51 was federally preempted by federal law. 

It is too early to know whether the State of California will attempt a further appeal. However, last summer’s Viking River Cruises v. Moriana opinion indicates that SCOTUS will likely be hostile to the State of California’s position.

The Viking River Cruises and Chamber of Commerce decisions provide employers with greater confidence that arbitration agreements will be enforced in California. However, employers need to remember that there are also new Federal limitations to mandatory arbitration. Earlier this year, President Biden signed an amendment to the FAA to prohibit mandatory arbitration of employee claims of sexual harassment or sexual assault.

Many practitioners believe that there are pros and cons to using mandatory arbitration agreements in California.  

California employers who currently use arbitration agreements should enjoy the sweet kiss of this Valentine’s Day present.