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September 23, 2021

Court Reinstates California Ban on Most Mandatory Arbitration Agreements

The Ninth Circuit Court of Appeals recently ruled that California’s Assembly Bill 51, which would make it unlawful for California employers to require applicants and employees to sign arbitration agreements as a condition of employment, is not preempted by the Federal Aviation Act (FAA). The court lifted a lower court’s injunction that has barred the law from taking effect since 2019. 

On a positive note, the court emphasized that AB 51 does not void arbitration agreements previously entered into under the FAA, does not prohibit employers from offering arbitration on a voluntary basis and does not invalidate an arbitration agreement entered into under the FAA, even if the agreement had been required as a condition of employment. Finally, the court upheld the lower court’s ruling that the FAA preempts AB 51’s civil and criminal penalties imposed on employers that violate AB 51. 

The 2-1 split decision is likely to be appealed for review by the full Ninth Circuit or ultimately to the United States Supreme Court, which has consistently struck down the State’s attempts to ban mandatory arbitration in employment agreements for violating the FAA.

Employers should carefully monitor this case. Assuming the case is reviewed by a larger panel of the Ninth Circuit or by the Supreme Court, review could stay the effect of the panel’s decision.