Ninth Circuit Grants Rehearing on California Law Banning Mandatory Employment Arbitration Agreements

The Ninth Circuit Court docket of Appeals panel that initially determined Chamber of Commerce v. Bonta previous tumble recently issued an purchase withdrawing its prior belief and granting a panel rehearing. The divided panel’s original conclusion upheld parts of Assembly Invoice 51 (“AB 51”), a California legislation that prohibits employers from necessitating that workforce indication an arbitration settlement as a condition of employment. The panel’s decision to rehear the attraction is notable due to the fact it implies that the panel may possibly rule that the Federal Arbitration Act (“FAA”) preempts AB 51 in its entirety following the U.S. Supreme Court’s new conclusion in Viking River Cruises, Inc. v. Moriana. The Supreme Court in Viking River Cruises held that California regulation precluding the division of PAGA steps into personal and non-personal statements by an settlement to arbitrate was preempted by the FAA.

Track record

AB 51 applies to any arbitration settlement entered into or modified on or right after January 1, 2020, the day the regulation turned productive. Under AB 51, it is unlawful for employers to have to have that staff or candidates indicator an settlement to arbitrate claims underneath the California Truthful Work and Housing Act (“FEHA”) and/or the Labor Code as a issue of work, ongoing employment, or receipt of employment-linked benefits. Significantly, somewhat than invalidate the arbitration arrangement, AB 51 alternatively subjects an employer to civil and legal penalties. 

On AB 51 having outcome in early 2020, the U.S. Chamber of Commerce, among the many others, instantly sought to enjoin the law’s enforcement. On January 31, 2020, the U.S. District Court for the Japanese District of California granted the request for a preliminary injunction, thereby enjoining enforcement of AB 51 on arbitration agreements governed by the FAA. The foundation for the District Court’s ruling was that AB 51 (1) violates the FAA by placing arbitration agreements on an unequal footing with other contracts by especially focusing on arbitration agreements and imposing a higher consent requirement on them and (2) interferes with the FAA’s goal of endorsing arbitration by subjecting employers who seek out to enter into arbitration agreements to civil and legal penalties. The Point out of California appealed the preliminary injunction to the Ninth Circuit.

Ninth Circuit’s Authentic Ruling

As discussed beforehand by this website, a divided Ninth Circuit panel reversed the District Court’s conclusion in section on the grounds that AB 51 is not entirely preempted by the FAA. The bulk concluded that for the reason that AB 51 addresses only “pre-agreement employer behavior” (as opposed to the agreements themselves), the legislation does not invalidate or render unenforceable arbitration agreements covered by the FAA.” Therefore, the the greater part held that the FAA preempts AB 51 only with regard to its provisions that impose civil or prison penalties on businesses who execute arbitration agreements ruled by the FAA. 

The majority’s conclusion was greatly criticized in the dissent issued by Decide Sandra Ikuta. The dissent noted that U.S. Supreme Court docket precedent evidently retains that the FAA invalidates point out laws that impede the development of arbitration agreements. Thus, even with California’s attempt to evade the FAA by focusing on pre-arrangement employer conduct, “too-clever-by-50 % workarounds and covert attempts to block the development of arbitration agreements are preempted by the FAA just as a great deal as legislation that block enforcement of these types of agreements.”

Choice on Ask for for Rehearing

The U.S. Chamber of Commerce (and other people) promptly submitted a petition for rehearing en banc. In February 2022, the unique Ninth Circuit panel issued an get deferring thing to consider of the rehearing petition until soon after the Supreme Court’s selection in Viking River Cruises. On August 22, 2022, the panel issued an buy withdrawing its prior feeling and granting a panel rehearing. That get also was divided, with Judges Ikuta and William Fletcher voting in favor of a rehearing and Decide Carlos Lucero, sitting by designation from the Tenth Circuit, voting in opposition to rehearing. The Ninth Circuit has however to set a date for the rehearing.

Principal Takeaways

Choose Fletcher’s decision to withdraw the opinion he previously supported suggests that he could now agree with Choose Ikuta that AB 51 is preempted in its entirety by the FAA. With the prior Ninth Circuit conclusion now withdrawn, the District Court’s preliminary injunction enjoining enforcement of AB 51 continues to be in area pending the rehearing final decision. Employers who keep on to need arbitration agreements as a problem of work, or who are considering rolling out arbitration agreements adhering to the Viking River Cruises determination, ought to closely keep track of the attractiveness and consult with with professional employment counsel on how ideal to move forward.

This short article is not an unequivocal statement of the law, but instead provides some potential difficulties to consider with counsel. This is provided for informational functions only and does not constitute lawful guidance and is not meant to sort an attorney shopper partnership. Please get in touch with your Sheppard Mullin lawyer make contact with for further info.