California employers may now continue utilizing mandatory arbitration agreements with employees and job applicants, based on a recent federal appeals court decision.
California’s Assembly Bill 51, the Ninth Circuit Court of Appeals in Chamber of Commerce v. Bonta has held, in a 2-1 decision, that the Federal Arbitration Act preempts California’s anti-arbitration statute
AB 51.
Background
CA Assembly Bill 51 would have made it unlawful for California employers to require applicants and employees to sign arbitration agreements as a condition of employment beginning January 1, 2020. Violations of the law could not only lead to civil and criminal penalties but would also be considered an “unlawful employment practice.” This means they would have been subject to the private right of action under FEHA, which could have open employers to retaliation claims associated with an employee’s refusal to sign a mandatory arbitration agreement.
Red Flag Tip!
FAA-covered California employers may continue to require their employees and job applicants to sign arbitration agreements as a condition of employment. One important reason to do so is to obtain lawful class action waivers, which can be made expressly, but are also implicit in arbitration agreements that are silent or ambiguous on the issue. And there are considerations that may limit this ability and vary by employer and industry. Please refer to a competent employment counsel regarding these points and to ensure you have an up-to-date arbitration agreement.
Employers interested in moving forward with an arbitration program should consider whom to cover, and how to do it. New hires can be required to enter into arbitration contracts as a condition of hire. Incumbent employees can also be covered through various types of arbitration agreements, such as so-called “quit, or you’re bound” agreements, “opt out” agreements, or agreements tied to promotion offers. However, given that arbitration agreements are subject to challenge if not put in place carefully, employers should consult with legal counsel before proceeding.
Although a preliminary injunction only “temporarily” blocks the law while the court examines the underlying legality of the statute, the 9th Circuit’s ruling that the FAA preempts AB 51 can essentially be read as an end of the state law. While the underlying litigation about the legality of the statute will still play out, its unlikely we will see AB 51 rise again.
HR NETwork does not provide Arbitration Agreements. Please see your legal council for clarification and assistance specifically regarding arbitration.