Ninth Circuit Upholds California Ban on Mandatory Employment Arbitration Agreements
from SWEENEY MASON LLP
In October 2019, Governor Newsom signed AB 51, a bill prohibiting employers from requiring mandatory arbitration agreements as a condition of employment. It applied to all mandatory arbitration agreements entered into or modified on or after January 1, 2020. AB 51 also imposed criminal and civil sanctions for violations of the law.
Two days before AB 51 was set to go into effect, the U.S. District Court for the Eastern District of California issued an injunction in the case of Chamber of Commerce of the U.S. v. Bonta, blocking enforcement of AB 51, on the grounds that AB 51 directly conflicted with the Federal Arbitration Act (FAA).
Fast forward to September 15, 2021, when a panel of the Ninth Circuit Court of Appeals issued a 2-1 decision reversing the lower court's injunction. The Ninth Circuit mostly upheld AB 51, finding that it did not conflict with the FAA, but it did invalidate the criminal and civil penalties.
The Ninth Circuit panel’s decision does not take effect immediately, however, and it is very likely that the decision will be challenged either to the full Ninth Circuit or to the U.S. Supreme Court. In the meantime, California employers that continue to use mandatory arbitration agreements face risk and uncertainty.
1. Stop requiring arbitration as a condition of employment.
2. Consider voluntary arbitration agreements - but remember, the employer bears the burden of showing it is truly voluntary. Pay close attention to how agreements are presented to employees.
- Make it a standalone document - do not bury it in an employee handbook or make it part of an employment agreement.
- Give employees sufficient time to review/consult with counsel.
- Explain, both in writing and orally, that signing the arbitration agreement is voluntary and that there will be no retaliation if they do not sign. It is safe to assume that many employees will not read the full agreement, so explain in an email or short cover letter to the agreement about its voluntary nature.
- Include specific language in the agreement that makes it clear it is a voluntary agreement and not a condition of employment.
- Ensure that arbitration is mutual (i.e. requires the employer to arbitrate disputes too, not just the employee).
- Do not take any actions that could be construed as retaliatory if the employee refuses to sign
3. Review new hire documents to remove all references to mandatory arbitration.
4. Review existing arbitration agreements.
- AB 51 applies only to mandatory arbitration agreements entered into or modified on or after January 1, 2020.
- It does not invalidate agreements entered into before January 1, 2020.
- Mandatory arbitration agreements entered into between January 1, 2020 and now should be reviewed with legal counsel.
The information provided in this publication is general in nature and is not intended to answer every question that may arise under different fact situations and should not be relied on in the place of professional advice in a given case. If you have specific questions, please contact Sweeney Mason LLP.
SWEENEY MASON LLP’s philosophy is that by educating our clients, and other businesses, about their legal obligations, including changes in the law, we best serve our legal goal of minimizing or preventing expensive litigation.
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