Ninth Circuit Cancels Preliminary Order Against Enforcement of Employment Arbitration Agreement Ban | Payne and the fears
This morning, in his decision in Chamber of Commerce c. Bonta, No. 20-15291, the Ninth Circuit Court of Appeals overturned a January 2020 preliminary injunction against the application of AB 51, a California law of 2019 effectively banning mandatory employee arbitration agreements. The preliminary injunction being canceled, the State of California is no longer prevented from applying this law.
The history of AB 51 and the preliminary injunction
As we have previously reported, AB 51 adds section 432.6 to the Labor Code and section 12953 to the Government Code, which together prohibit employers from requiring an employee, as a condition of employment, to maintain employment or to collect employment benefits, waive any right, forum, or process to bring an action under the California Fair Employment and Housing Act or the Labor Code. In other words, AB 51 prohibits mandatory employment arbitration agreements for employment-related claims.
In January 2020, a federal judge issued a preliminary injunction against the application of AB 51, on the grounds that section 432.6 is pre-empted by the Federal Arbitration Act (“FAA”). The order expressly directed the California Attorney General, the California Labor Commissioner, the Secretary of the California Labor and Workforce Development Agency (“LWDA”) and the Director of the California Department of Fair Employment and Housing (“DFEH”) to ‘apply (1) Articles 432.6 (a), (b) and (c) of the Labor Code “when the alleged“ waiver of a right, forum or procedure ”is the conclusion of an agreement of arbitration covered by the Federal Arbitration Law ”and (2) Article 12953 of the Government Code“ where the alleged violation of Article 432.6 of the Labor Code is the conclusion of an arbitration agreement covered by the FAA ”.
The decision of the ninth circuit
In a 2-1 decision, the Ninth Circuit partially overturned the trial court’s decision, quashed the preliminary injunction and remanded the case for further processing. The court ruled that Section 432.6 is not preempted by the FAA’s guarantee “to have consensual arbitration agreements enforced in accordance with their terms” because Section 432.6 is “only concerned with the behavior of the employer before the agreement ”. In the majority’s view, the FAA was not intended to prevail over state laws requiring arbitration agreements to be voluntary. Section 432.6 does nothing more than “codify what the FAA editors took for granted: that arbitration is a matter of contract and that arbitration agreements must be voluntary and consensual.” As we read California Labor Code § 432.6, the State of California has chosen to ensure that the conclusion of an arbitration agreement by an employer and an employee is mutually consensual and to declare that obliging a reluctant party to arbitrating is an unfair labor practice.
That said, the Ninth Circuit found that the civil and criminal penalties attached to a violation of Section 432.6 go against the FAA and are therefore preempted, because the “enforcement mechanisms that accompany employers for violating section 432.6 necessarily includes the punishment of employers. to enter into an arbitration agreement. Thus, Article 12953 of the Government Code and Article 433 of the Labor Code are pre-empted insofar as they apply to executed arbitration agreements covered by the FAA.
The practical implications
This case could very well end up in the United States Supreme Court. As dissenting judge Ikuta wrote, “Like a classic clown bop bag, no matter how many times California is criticized for violating the Federal Arbitration Act (FAA), the state is bouncing back with even greater methods. creative ways to bypass the FAA. “
In the meantime, employers should immediately review their employment arbitration agreements and practices. As we recommended when signing AB 51, although employers may continue to seek voluntary arbitration agreements with employees, they should ensure that such efforts are not a condition. prior to employment, maintenance of employment or receipt of employment-related benefits. It will be essential that efforts to obtain an employee’s agreement to arbitrate claims are made in writing, and that the writing clearly indicates that the employee can choose not to enter into the agreement and that he does not. will not face retaliation if he or she chooses to disagree.