On February 15, 2023, the Ninth Circuit struck down AB 51, a California statute that imposed criminal and civil penalties against employers who required employees to enter into an arbitration agreement as a condition of employment, finding the statute to be an “unacceptable obstacle to the accomplishment and execution of the full purposes and objectives” of the Federal Arbitration Act (“FAA”).  Chamber of Commerce of the United States of America, et al. v. Bonta, et al., No. 20-15291 (9th Cir. 2023).

As discussed in our prior post and articles (link here), in August 2022 the Ninth Circuit withdrew its prior decision, which had upheld portions of AB 51, following the United States Supreme Court’s June 2022 decision in Viking River Cruises v. Moriana.

AB 51, embodied in California Labor Code §432.6 effective January 1, 2020, prohibited an employer from entering into a non-negotiable agreement that required the employee to waive “any right, forum, or procedure” for a violation of the Fair Employment and Housing Act or the California Labor Code, including “the right to file and pursue a civil action.”  Further, AB 51 imposed harsh penalties for employers who violated the statute, including a fine of up to $1,000 and up to six months’ imprisonment, as well as the potential for civil litigation by the State of California or by private individuals.  In an effort to avoid Supreme Court decisions striking down state laws that improperly targeted arbitration agreements, the California legislature also created the confusing outcome that potentially criminalized the formation of non-negotiable arbitration agreements, but permitted their enforcement once executed. 

Noting that arbitration agreements by their very nature require parties to waive their rights to bring disputes in court, and crediting the plaintiffs’ evidence that the possible imposition of civil and criminal penalties deterred employers from attempting to enter into non-negotiable agreements with employees, the court affirmed the district court’s preliminary injunction in favor of several trade associations and business groups who sought to block the implementation of the statute.  Relying on principles of preemption and judicial precedent striking down similar state laws or judge-made rules that singled out executed arbitration agreements, the Court found AB 51 improperly “burden[s]” the formation of arbitration agreements in violation of the FAA.

Having written the previous 2-1 decision upholding AB 51, Judge Lucero now found himself dissenting.  Arguing that the majority “misconstrue[d] the jurisprudence” of the Supreme Court, the dissent claimed that arbitration was permissible only if consensual and that AB 51 only applied to conduct occurring prior to the formation of the contract and thus was not an obstacle to the objectives of the FAA. 

Employers may require their California employees to sign non-negotiable arbitration agreements to obtain or maintain their employment.  Arbitration agreements may still be unenforceable however if they are procedurally and substantively unconscionable, if the agreement lacks mutual consent because a party was forced to sign by threats or physical coercion or “upon such grounds as exist at law or in equity for the revocation of any contract.”  Thus, employers should review their agreements to ensure they are in compliance with other California requirements, that the terms are not unfair or one-sided, and, the agreement presented is not unfair, surprising or oppressive.

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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.