In another win for California employers, the Ninth Circuit Court of Appeals reversed itself and ruled that Assembly Bill 51 is preempted by the Federal Arbitration Act (“FAA”) and that California employers may roll out mandatory arbitration agreements as a condition of employment.

Arbitration is an out-of-court procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding and legally enforceable decision on the dispute.  In choosing arbitration, the parties opt for a private dispute resolution instead of going to court.  The pros and cons of arbitration are explained here.

AB 51 served as the California legislature’s effort to prevent employers from requiring its employees to enter into arbitration agreements as a condition of employment.  Governor Newsom signed AB 51 into law on October 19, 2019, with an effective date of January 1, 2020.  Since that time, AB 51 has seen a back-and-forth ride in which the courts have grappled with whether or not AB 51 is preempted by the FAA.

A comprehensive history of AB 51 and mandatory arbitration agreements can be found here.

After more than three years since AB 51 was signed into law by Governor Newsom, the Ninth Circuit Court of Appeals ruled that AB 51 is preempted by the FAA and upheld the preliminary injunction that blocks California’s ban on mandatory arbitration.

In doing so, Judge Ikuta wrote that “under California law, an employee can ‘consent’ to an employment contract by entering into it, even if the contract was a product of unequal bargaining power and even if it contains terms (such as an arbitration provision) that the employee dislikes, so long as the terms are not invalid due to unconscionability or other generally applicable contract principles”.

While the Ninth Circuit’s ruling is favorable to California employers, employers are not out of the woods yet.  California may choose to petition for the case to be taken up by the Ninth Circuit en banc or could seek review from the United States Supreme Court. We will continue to monitor additional developments and post any updates.

Key Takeaway

Based on the Ninth Circuit’s ruling, employers may continue to require employees to sign arbitration agreements as a condition of employment. If you have been holding off on rolling out arbitration agreements to your workforce, the time to do so is now.  We are available to walk you through the process and ensure you have an enforceable arbitration agreement.

Please contact the author of this post or your Fox Rothschild attorney should you have any questions.