Compliance Matters TM
Federal Appeals Court Upholds California’s Law Prohibiting Mandatory Workplace Arbitration Agreements 
In October 2019, California passed Assembly Bill 51 ("AB 51"), which prohibits employers from requiring employees to sign arbitration agreements as a condition of employment (or continued employment). AB51 also imposed substantial civil and criminal penalties for any violation of the new law. Notably, the law only covered workplace arbitration agreements signed after January 1, 2020. 

As we previously reported, the Chamber of Commerce obtained an injunction in federal court last January which prevented the new law from going into effect. The court halted enforcement of the new law because it concluded AB51 was at odds with the 1925 Federal Arbitration Act ("FAA"), which promoted the use of arbitration agreements. 

On September 15, 2021, the Ninth Circuit U.S. Court of Appeals held that AB 51 is not preempted by the FAA after all, and reinstated the provision that outlawed employers from forcing employees and job applicants to sign arbitration agreements. However, the appellate court struck the portions of the California statute that authorized the issuance of civil and criminal penalties.

Based on the Ninth Circuit's decision, California employers can no longer insist that job applicants and employees sign an arbitration agreement as a condition of employment or continued employment, or to receive any employment-related benefit. Employers also may not discriminate or retaliate against employees who decline to sign arbitration agreements when asked to do so. Employees and job applicants claiming a violation of AB 51 may sue in state court to recover civil damages and attorney's fees.   

By its terms, since AB51 only outlaws mandatory agreements, it does not prohibit workplace arbitration agreements that are entered into voluntarily. Voluntary arbitration agreements are still permissible. However, since the voluntariness of the arrangement could be challenged by someone seeking to resist arbitration, it would be wise for employers to take extra precautions to insure the voluntariness of the agreement. Moreover, since the FAA permits mandatory workplace arbitration agreements, it is unclear whether such an agreement would still be enforced by a court. 

The dissenting Ninth Circuit opinion strongly criticized the majority, and predicted that the case will be overturned by the U.S. Supreme Court. Experts agree that the conflict between AB51 and the FAA makes the case attractive for Supreme Court consideration. However, the appeal process could easily take a year or more, during which time judges must follow the Ninth Circuit decision when considering challenges to workplace arbitration agreements.  

Implications for Employers:

Until the Supreme Court says otherwise, AB51 is the law in California. Accordingly, employers should review their employment arbitration agreements entered into after January 1, 2020 for language in which the employee acknowledges the voluntariness of the entire agreement process. Although such provisions are not bulletproof, having the employee sign something stating that they were not compelled to enter into the agreement could be powerful evidence if the employer is sued for a violation of AB51.

As always, we highly recommend that you consult with labor and employment counsel before adopting or revising arbitration agreements. If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at 818-508-3700 or visit us online at  

Richard S. Rosenberg
Sherry N. Shayan
Jeffrey P. Fuchsman
Ballard Rosenberg Golper & Savitt, LLP 
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