The 9th U.S. Circuit Court of Appeals has ruled that AB 51, the law that makes it a crime to require job seekers and employees to sign agreements for arbitration of workplace disputes is preempted by federal law.  Accordingly, California employers can compel employees to sign mandatory arbitration agreements as a condition of employment. In the 2-1 decision, the Ninth Circuit panel ruled on Feb. 15 that the Federal Arbitration Act preempts AB 51. 

“Because the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 is therefore preempted,” wrote Judge Sandra Ikuta for the majority. 

The 9th Circuit had partially upheld parts of AB 51 in 2021, but upon reconsideration withdrew the opinion and granted a rehearing in Chamber of Commerce v. Bonta. 

With AB 51 ruled unenforceable, California employers may continue to use mandatory arbitration agreements for the time being. The state could ask the full Ninth Circuit or the U.S. Supreme Court to review the decision, though it is highly unlikely the Supreme Court would reject the panel’s ruling in the case. Further, employers should keep in mind that even executed mandatory arbitration agreements are unenforceable if they are either procedurally or substantively unconscionable. Therefore, employers are strongly encouraged to consult with legal counsel for any policy or practice related to the use of mandatory arbitration agreements, including the drafting and review of the agreements.