Today the Ninth Circuit Court of Appeal struck down a 2020 California law that forbade employers from requiring employees to waive their right to file certain employment law claims in court, including claims for discrimination or violation of state wage laws. The clear intention of the law (known as Assembly Bill 51, or AB51) was to prevent employers from forcing arbitration agreements on employees, and the Ninth Circuit held that the Federal Arbitration Act conflicted with and preempted AB 51. The law had been drafted in an attempt to avoid such a preemption decision – an attempt now proven to be in vain. The decision likely puts to rest more than two years of uncertainty about the state of the law.
In response to a suit by the United States Chamber of Commerce, a federal district court issued a preliminary injunction suspending enforcement of the law shortly after it was passed. A Ninth Circuit panel reversed in part in September 2021, vacating the preliminary injunction as to the key portion of the law but leaving it in place with respect to the portion that imposed criminal and civil penalties for its violation. See Chamber of Comm. of the U.S. v. Bonta, 13 F.4th 766 (9th Cir. 2021). Judge Ikuta, who has authored key Ninth Circuit decisions protective of arbitration, dissented. The Chamber of Commerce petitioned for a rehearing en banc, and the panel put the petition on pause to await the U.S. Supreme Court’s decision in Moriana v. Viking River Cruises, Inc. After the Viking River opinion came out, the panel voted to withdraw its September 2021 opinion, with Judge Fletcher joining Judge Ikuta in the order. Thus, it was perhaps not a surprise that in today’s opinion, Judge Fletcher changed positions and joined the opinion authored by Judge Ikuta.
Today’s opinion relied on U.S. Supreme Court precedent from the past ten or so years that has greatly expanded the role of arbitration agreements in employment and consumer disputes. Under those authorities, Judge Ikuta’s opinion holds that AB 51 is void “[b]ecause the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose.” The court rejected arguments from the State based on the legislature’s explicit attempt to avoid preemption when drafting the statute – i.e., the law was drafted to forbid parties from entering into agreements that waive the judicial forum, but it did not actually render such agreements unenforceable. The Ninth Circuit responded that “AB 51’s penalty-based scheme to inhibit arbitration agreements before they are formed” is the type of device “evincing hostility toward arbitration that the FAA was enacted to overcome.”
In dissent, Judge Lucero pointed out that the Supreme Court “has never held nor implied that employers may require arbitration as a condition of employment,” and stated that AB 51 merely codified the noncontroversial principle that “arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual.” The late Justice Ginsburg pointed out in powerful dissents in some of the cases relied on by Judge Ikuta that the FAA was not intended by Congress to have the kind of power that the Supreme Court has given it in recent years. Given the make-up of the Supreme Court, chances of reversal of today’s decision seem small.
The decision, Chamber of Commerce v. Bonta, No. 20-15291 (Feb. 15, 2023), is available here.
Posted by Ally Girouard and William Jhaveri-Weeks
William Jhaveri-Weeks is the founder of The Jhaveri-Weeks Firm, a San Francisco-based civil litigation practice for individuals and organizations.