The three-judge panel that decided AB 51 was (mostly) lawful, and that employers could not retaliate against employees who refused to sign arbitration agreements as a condition of employment, withdrew the decision and agreed to take another look.  On August 22, 2022, two of three members of the panel that decided Chamber of Commerce of the U.S. v. Bonta voted to withdraw the ruling sua sponte and agreed to a rehearing in light of the U.S. Supreme Court’s ruling in Viking River Cruises v. Moriana.

The panel will again have to decide whether the Federal Arbitration Act (“FAA”) preempts AB 51’s attempt to prohibit employers from imposing arbitration agreements on employees as a condition of employment, even if the employee can opt out. 

Under the October 2019 legislation, which was to become effective on January 1, 2020, employers could face misdemeanor criminal charges and civil penalties for requiring employees to sign arbitration agreements as a condition of employment.  After its passage, the U.S. and California Chambers of Commerce quickly sought a preliminary injunction against several California agencies to stop their enforcement of the statute.  The state argued that AB 51 was not preempted by the FAA because the legislation governed conduct which occurred prior to the formation of the agreement to arbitrate and thus the FAA did not apply. 

In February 2020, the District Court for the Eastern District of California held that AB 51 was preempted by the FAA and granted a preliminary injunction, noting that AB 51 discriminated against arbitration agreements and interfered with the objectives of the FAA.  The court enjoined the California attorney general and other state officials from enforcing AB 51 or imposing civil or criminal penalties.

On September 15, 2021, a divided Ninth Circuit partially reversed the district court’s order, holding the FAA did not preempt most of AB 51 and dismissing the injunction.  Although the Court agreed that the imposition of criminal and civil penalties would create an obstacle to the purposes of the FAA, the Court found the penalties are not preempted if they apply only to conduct that occurs prior to an arbitration agreement being signed.  Thus, according to the Court’s anomalous reasoning, employers would not face penalties if the employee agreed to sign the arbitration agreement, but employers could face both criminal and civil penalties if the employee refused.  Further consideration of AB 51’s ruling was put on hold by the Ninth Circuit pending a decision by the U.S. Supreme Court in Viking River Cruises v. Moriana.

On June 15, 2022, the U.S. Supreme Court decided Viking River Cruises, in which the Court examined FAA preemption.  The Court held that the FAA preempted the “Iskanian Rule,” named after a California Supreme Court case, and held that the FAA permits employers and employees to agree to arbitrate California Private Attorneys General Act claims on an individual basis.  (See summary here.)  

Whether Viking River Cruises’ preemption analysis will impact the decisionmakers in the Bonta case remains to be seen, but the withdrawal of its previous decision could be good news for employers.  For now, the district court’s preliminary injunction prohibiting enforcement is back in place as the Ninth Circuit’s earlier 2-1 decision dismissing the injunction has been withdrawn.  Employers may wish to revisit their current arbitration agreements in light of these decisions but should seek assistance from experienced employment counsel.

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Photo of Elizabeth N. Hall Elizabeth N. Hall

Elizabeth N. Hall is a Shareholder in the firm’s Labor and Employment practice area and serves as the Chicago office chair of the firm’s women’s affinity group, “Women at Vedder Empowering Success” (WAVES).

Ms. Hall represents a wide range of employers before state

Elizabeth N. Hall is a Shareholder in the firm’s Labor and Employment practice area and serves as the Chicago office chair of the firm’s women’s affinity group, “Women at Vedder Empowering Success” (WAVES).

Ms. Hall represents a wide range of employers before state and federal courts and administrative agencies, as well as in arbitral forums, defending them against various claims, including single plaintiff and class allegations of employment discrimination, failure to accommodate disabilities, sexual harassment, wrongful and retaliatory discharge, breach of contract and violations of the FMLA and wage and hour laws. Ms. Hall has successfully argued procedural and employment discrimination issues in the U.S. Court of Appeals for the Seventh Circuit and has particular expertise in managing electronic discovery teams in complex litigation.

A significant portion of Ms. Hall’s daily practice involves providing practical advice to employers regarding risk management; effective employee discipline and discharge; conducting workplace investigations; accommodating disabilities and pregnancy; workplace violence; managing leaves of absence and complying with FMLA and state leave requirements; workforce reductions; drafting and reviewing employment, recruitment and staffing agreements; policy and handbook development; wage and hour compliance; and state and federal employment laws. She frequently trains clients and employer groups on many of these topics.  Ms. Hall also has extensive experience drafting and negotiating severance, settlement and conciliation agreements on behalf of employer clients.

In 2017 and 2018, Ms. Hall was recommended by The Legal 500 United States for the Labor and Employment Disputes (including collective actions): Defense category. In 2018, she was named to the Crain’s Custom Media “Chicago Notable Women Lawyers” list. She also was selected as an Emerging Lawyer, an affiliate of Leading Lawyers, from 2015 to 2019. From 2010 to 2015, Ms. Hall was selected for inclusion as an Illinois Rising Star, and Super Lawyers named her one of the “Top Women Attorneys in Illinois” in the “Rising Star” category in 2013 and 2014.