On Wednesday, a Ninth Circuit panel lifted an injunction that prevented California from enforcing a law that prohibited employers from requiring employees and applicants to arbitrate work-related claims.  The case, Chamber of Commerce v. Bonta, will find itself before the U.S. Supreme Court in short order.
 
Governor Newsom signed Assembly Bill 51 (AB 51) into law in 2019.  Generally, the law prohibits employers from retaliating against workers and applicants who decline to sign arbitration agreements as a condition of employment.  AB 51 established civil and criminal penalties for violations.  The law was immediately met with legal challenges from business groups led by the U.S. Chamber of Commerce.
 
In February 2020, U.S. District Judge Kimberly J. Mueller granted a preliminary injunction to the business groups that challenged AB 51.  The district court found that AB 51 stood as an obstacle to the purposes of the Federal Arbitration Act (FAA) and was thus preempted by the FAA.
 
Yesterday, the panel majority reversed the district court’s judgment.  The majority construed AB 51 as governing the “conduct that takes place prior to the existence of” an arbitration agreement and mandating that such agreements are “consensual.  The purpose of AB 51, according to the majority, was “to assure that entry into an arbitration agreement by an employer and employee is mutually consensual and to declare that compelling an unwilling party to arbitrate is an unfair labor practice.” 
 
Because the FAA does not require “parties to arbitrate when but one party desires to do so,” the panel majority found AB 51 is not completely preempted by the FAA.  However, it held that the civil and criminal penalties imposed by AB 51 are preempted by the FAA because they "necessarily include punishing employers for entering into an agreement to arbitrate."  Notably, the majority explained that even if the consummation of an arbitration agreement violates AB 51, the law does not invalidate the agreement.
 
As a result, the resurrected version of AB 51 would make it unlawful for employers to require employment arbitration agreements but the agreements could be valid and enforceable under federal law.  Even under the panel majority’s construction of AB 51, it is difficult to ascertain how AB 51 is not a state law that impedes the purposes of the FAA.  Even if AB 51 takes aim at the formation of agreements, it makes it unlawful to enter into agreements that are valid and enforceable under the FAA.
 
The opening paragraph of Ninth Circuit judge Sandra Ikuta’s scathing dissent provides a colorful summary of what transpired:
 
Like a classic clown bop bag, no matter how many times California is smacked down for violating the Federal Arbitration Act (FAA), the state bounces back with even more creative methods to sidestep the FAA. This time, California has enacted AB 51, which has a disproportionate impact on arbitration agreements by making it a crime for employers to require arbitration provisions in employment contracts. [Citations omitted] And today the majority abets California’s attempt to evade the FAA and the Supreme Court’s caselaw by upholding this anti-arbitration law on the pretext that it bars only nonconsensual agreements.… AB 51 is a blatant attack on arbitration agreements, contrary to both the FAA and longstanding Supreme Court precedent.
 
It has been reported that the business groups challenging AB 51 have already stated they will seek review of the decision.