Ninth Circuit Revisits and Overturns California’s Ban on Employment Arbitration

Client Alert

On Wednesday, the U.S. Court of Appeals for the Ninth Circuit reversed itself in a 2-to-1 opinion and largely struck down a California law that would have prohibited employers from imposing binding arbitration of employment disputes.

The decision is the latest in a relative whirlwind of court challenges to Assembly Bill 51 (L. Gonzalez), passed by the California Legislature and signed into law by Governor Gavin Newsom in 2019.

AB 51 prohibited employers from requiring mandatory arbitration as a condition of employment by making it illegal for an employer to require an employee to “waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act (FEHA) or the Labor Code as a condition of employment.” AB 51 also prohibited employers “from threatening, retaliating, or discriminating against an employee for refusing to consent to such a waiver.”

The change in law was to take effect on January 1, 2020, but a federal trial court ruled that federal law preempts AB 51’s changes and ordered that AB 51 could not take effect to the extent it was inconsistent with the Federal Arbitration Act of 1926.

The Ninth Circuit overturned the trial court’s decision in September 2021 (in a 2-to-1 opinion), concluding that the Federal Arbitration Act did not prevent implementation of AB 51. But the Ninth Circuit reconsidered its 2021 decision and this week reversed it. The latest opinion largely follows the reasoning of the original trial court judge in determining that AB 51 violated the Federal Arbitration Act.

California Attorney General Rob Bonta has already indicated that he expects to appeal the decision on behalf of the state.

This case and AB 51 have received national attention, with the U.S. Chamber of Commerce and national labor interests lining up on opposite sides. The case also offers rare insights into the importance a few individuals can have on state and national policy.  The Ninth Circuit reversed itself 17 months after issuing its original decision. The decision came down to the vote of a single judge who sat on both three-judge panels that heard the appeals. That judge originally cast the deciding vote in 2021 to rule that AB 51 could take effect, yet this week he cast the deciding vote to overturn that original ruling. The author of AB 51, California Assemblymember Lorena Gonzalez, left the Legislature last year to become the leader of the California Labor Federation, a prominent labor alliance that advocated for enactment of AB 51 and has been an interested party in the court decisions.



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