Los Angeles, Calif. (October 27, 2021) - Since Governor Gavin Newsom first signed Assembly Bill 51 (AB 51) into effect on October 10, 2019, there has been an ongoing battle as to the legal enforceability of this ban on arbitration as a condition of employment. The Federal Arbitration Act (FAA) serves to prevent courts and state laws from disfavoring arbitration. Nonetheless, AB 51 makes it a criminal misdemeanor for an employer to require workers or job applicants to waive their right to sue for violations of the California Fair Employment and Housing Act or the California Labor Code or to obtain employment benefits. While the Ninth Circuit most recently held that AB 51 is enforceable, the Chamber of Commerce of the U.S. has requested a full rehearing of the case.
In December 2019, the Chamber of Commerce (Chamber), among other business groups, challenged the law arguing that the "U.S. Supreme Court has repeatedly held that state laws that single out arbitration agreements for disfavored treatment are preempted." In February 2020, the Chamber was awarded a preliminary injunction on their challenge.
However, in September 2021, a divided three-judge panel partially reversed the injunction, concluding that AB 51 is not preempted by the FAA and that the state law itself does not undermine the Supreme Court's precedent of encouraging arbitration. Nonetheless, the panel found that the part of the law that makes it a criminal misdemeanor for employers to require workers or job applicants to arbitrate work-related claims as a condition of employment is in fact preempted by the FAA.
Consequently, on October 20, 2021, the Chamber filed a petition for a rehearing of its case en banc. The Chamber argued that the split panel's decision creates a circuit split by allowing California to blatantly contravene the FAA.
The Chamber reiterated Judge Sandra S. Ikuta's September 2021 dissent, maintaining that the Supreme Court held the FAA protects both enforcement and formation of arbitration agreements. Further, the Chamber emphasized the main proposition from the Supreme Court's landmark case, Kindred Nursing Centers LP v. Clark, 137 S. Ct. 1421, 1428 (2017), identified by Judge Ikuta's dissent, that a state cannot single out such agreements by imposing "special limiting rules" at the formation stage. The Chamber noted that "AB 51 does just that: it prohibits employers from making arbitration provisions a condition of employment, while numerous other take-it-or-leave-it conditions remain lawful."
As the Chamber's petition is pending, the district court's injunction against the enforcement of AB 51 remains in effect.
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