In a recent decision that is good news for California employers, the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s ruling striking down California Assembly Bill 51 (“AB 51”) as preempted by the Federal Arbitration Act (“FAA”). The decision permits California employers to require applicants and employees to agree to arbitrate employment-related disputes as a condition of employment. The Ninth Circuit decision aligned itself with similar decisions from the First and Fourth Circuits that previously had rejected state laws regulating the creation of arbitration agreements.

In 2019, California passed AB 51 to prevent employers from requiring employees or job applicants to sign arbitration agreements as a condition of employment. AB 51 prevented an employer from requiring employees to waive, as a condition of employment, “any right, forum or procedure for a violation of any provision of the California Fair Employment and Housing Act,” including “the right to file and pursue a civil action or complaint.” AB 51 also imposed criminal and civil sanctions against employers who retaliated against, discriminated against, threatened, or discharged employees who refused to execute such a waiver.

The Ninth Circuit Court’s decision could be appealed, but, in the meantime, California employers may require employees to sign arbitration agreements as a condition of employment.  However, they must adhere to the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which enables employees to reject pre-dispute arbitration agreements and collective-action waivers pertaining to sexual harassment and assault matters.  California employers should consult with their labor and employment counsel on creating arbitration agreements.

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