California’s controversial arbitration ban (AB 51) [i], signed by Governor Newsom on October 10, 2019, and effective January 1, 2020, prohibits California employers – not subject to the Federal Arbitration Act (FAA) – from requiring employees to sign an arbitration agreement as a condition of employment.
Shortly after enactment the law was immediately challenged and an injunction on enforcement granted by the U.S. District Court. However, victory was short-lived as on September 15, 2021, a divided Ninth Circuit Court of Appeals panel reversed (in part) the injunction. [ii] In lifting the injunction, the Court reasoned that the FAA does not preempt AB 51 to the extent it attempts to regulate the employer’s conduct prior to executing an arbitration agreement. However, it did find that the FAA does preempt AB 51 to the extent it attempts to impose penalties on those employers who have already successfully executed arbitration agreements governed by FAA. The case was immediately petitioned for rehearing en banc[iii].
Having granted the petition for rehearing en banc, the Ninth Circuit (as of February 14, 2022) ordered hearings on the matter to be deferred pending a U.S. Supreme Court ruling on the case Viking River Cruises, Inc. v. Moriana. Viking River is a 2020 California Court of Appeal decision reaffirming California’s long-standing ruling that an arbitration agreement cannot include an enforceable waiver of an employee’s right to bring a representative action including those under California’s Private Attorneys General Act of 2004 (PAGA). The deferment is controversial in that the only similarity between the two cases is that they both involve arbitration agreements. In voting against the deferral, Judge Sandra Ikuta voiced her opinion that the issues raised in Viking River are not relevant to the arbitration issues currently before the Court. Oral argument in the Viking River case is set for March 30, 2022.
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