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

The Ninth Circuit Court docket of Appeals panel that originally determined Chamber of Commerce v. Bonta final drop a short while ago issued an get withdrawing its prior opinion and granting a panel rehearing. The divided panel’s first decision upheld parts of Assembly Monthly bill 51 (“AB 51”), a California regulation that prohibits employers from necessitating that workers indicator an arbitration arrangement as a affliction of employment. The panel’s decision to rehear the attractiveness is noteworthy due to the fact it implies that the panel may well rule that the Federal Arbitration Act (“FAA”) preempts AB 51 in its entirety pursuing the U.S. Supreme Court’s recent determination in Viking River Cruises, Inc. v. Moriana. The Supreme Court in Viking River Cruises held that California legislation precluding the division of PAGA actions into specific and non-individual statements via an arrangement to arbitrate was preempted by the FAA.

Qualifications

AB 51 applies to any arbitration settlement entered into or modified on or just after January 1, 2020, the date the law became effective. Under AB 51, it is illegal for businesses to require that workforce or candidates signal an agreement to arbitrate claims less than the California Truthful Employment and Housing Act (“FEHA”) and/or the Labor Code as a affliction of work, ongoing employment, or receipt of work-associated positive aspects. Significantly, alternatively than invalidate the arbitration agreement, AB 51 alternatively topics an employer to civil and prison penalties. 

On AB 51 getting result in early 2020, the U.S. Chamber of Commerce, among others, straight away sought to enjoin the law’s enforcement. On January 31, 2020, the U.S. District Court docket for the Jap District of California granted the ask for for a preliminary injunction, thus 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 putting arbitration agreements on an unequal footing with other contracts by specifically concentrating on arbitration agreements and imposing a increased consent prerequisite on them and (2) interferes with the FAA’s intention of endorsing arbitration by subjecting employers who look for to enter into arbitration agreements to civil and prison penalties. The Condition of California appealed the preliminary injunction to the Ninth Circuit.

Ninth Circuit’s Initial Ruling

As talked over earlier by this blog, a divided Ninth Circuit panel reversed the District Court’s final decision in aspect on the grounds that AB 51 is not totally preempted by the FAA. The bulk concluded that because AB 51 addresses only “pre-arrangement 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 respect to its provisions that impose civil or prison penalties on employers who execute arbitration agreements governed by the FAA. 

The majority’s decision was seriously criticized in the dissent issued by Decide Sandra Ikuta. The dissent noted that U.S. Supreme Court docket precedent clearly retains that the FAA invalidates condition legal guidelines that impede the development of arbitration agreements. Thus, despite California’s try to evade the FAA by focusing on pre-settlement employer actions, “too-clever-by-50 % workarounds and covert attempts to block the formation of arbitration agreements are preempted by the FAA just as substantially as rules that block enforcement of this sort of agreements.”

Selection on Ask for for Rehearing

The U.S. Chamber of Commerce (and other people) instantly filed a petition for rehearing en banc. In February 2022, the initial Ninth Circuit panel issued an purchase deferring thing to consider of the rehearing petition till immediately after the Supreme Court’s final decision in Viking River Cruises. On August 22, 2022, the panel issued an purchase withdrawing its prior impression and granting a panel rehearing. That purchase also was divided, with Judges Ikuta and William Fletcher voting in favor of a rehearing and Judge Carlos Lucero, sitting down by designation from the Tenth Circuit, voting in opposition to rehearing. The Ninth Circuit has nevertheless to set a date for the rehearing.

Principal Takeaways

Decide Fletcher’s final decision to withdraw the impression he previously supported implies that he may perhaps now agree with Judge Ikuta that AB 51 is preempted in its entirety by the FAA. With the prior Ninth Circuit choice now withdrawn, the District Court’s preliminary injunction enjoining enforcement of AB 51 stays in put pending the rehearing conclusion. Employers who go on to require arbitration agreements as a condition of employment, or who are considering rolling out arbitration agreements following the Viking River Cruises decision, should closely keep an eye on the attractiveness and check with with seasoned work counsel on how finest to move forward.

This report is not an unequivocal assertion of the law, but as an alternative features some possible issues to take into account with counsel. This is delivered for informational purposes only and does not represent legal assistance and is not meant to form an attorney consumer connection. Please get in touch with your Sheppard Mullin legal professional get in touch with for more details.