California’s attempt to prohibit the use of employment-related mandatory arbitration agreements has been a long and ongoing battle. The latest scrimmage stems from the 2019 legislative session which produced AB 51. Signed into law October 2019 and effective (for a short period) beginning January 1, 2020, AB 51 prohibited an employer from requiring any applicant or employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act or other specific statutes governing employment as a condition of employment, continued employment, or the receipt of any employment-related benefit.

As discussed here, shortly after enactment AB 51 was immediately challenged and an injunction on enforcement granted by the U.S. District Court. However, the injunction was short-lived as a divided Ninth Circuit Court of Appeals panel reversed the injunction (in part) which prompted the immediate filing of a petition for rehearing by the full court.  On August 22, 2022, instead of granting or denying the petition for rehearing, the Ninth Circuit made a surprise decision to withdraw its prior opinion and grant a full panel rehearing.

At the February 15, 2023 rehearing, the Court affirmed the original district court ruling which held that AB 51 was preempted by the Federal Arbitration Act (FAA).ⁱ The FAA’s broad policy mandates favor arbitration and act to preempt any state rule affecting the enforceability of arbitration agreements or those that treat arbitration agreements differently than other contracts. Based on this ‘equal treatment principle’ the Court found there was “no doubt” that AB 51 disfavored the formation of arbitration agreements over other types of contractual agreements and was therefore preempted in its entirety.

What does this mean for employers?

The finality of the Court’s decisionⁱⁱ means that California employers may (once again) make the signing of an arbitration agreement a condition of employment or continued employment.

Class Action and PAGA Waivers

A few words about the status of class action and Private Attorney General Act (PAGA) waivers in arbitration agreements. As discussed, here, here, and here, the status of class action and PAGA waivers are in flux. Employers currently utilizing arbitration agreements and/or those considering introducing arbitration agreements into the workplace, should consult legal counsel in connection with reviewing any representative action waiver and severability provisions to determine if they are sufficient to assist with compelling arbitration when a PAGA claim is alleged. Counsel should also be consulted on the pending status of the unanswered question of whether a plaintiff loses standing to bring a representative PAGA claim on behalf of others simply because their individual PAGA claim was compelled to arbitration.

[i] Chamber of Commerce v. Bonta (Feb. 2023) 62 F.4th 473.

[ii]The deadline for filing a petition for review with the CA Supreme Court has passed making this an unappealable final decision.