2/15/2023 Ninth Circuit Changes Course, Blocks California’s Ban on Mandatory Employment Arbitration

As an update to our continuing coverage of California’s AB 51, on February 15, 2023, the Ninth Circuit affirmed a district court’s grant of a preliminary injunction on the bill which was enacted to prohibit employers from imposing arbitration agreements as a condition of employment.  In Chamber of Commerce v. Bonta, a Ninth Circuit panel previously ruled in favor of the State and found that the Federal Arbitration Act (FAA) did not preempt AB 51 to the extent it applies to regulating employers’ conduct before an arbitration agreement is signed.  However, the panel withdrew its opinion late last year and issued a new decision explicitly finding that the FAA preempts AB 51 because the bill discriminates against the formation of arbitration agreements by prohibiting or discouraging their formation.  Specifically, “AB 51’s penalty-based scheme to inhibit arbitration agreements before formation violated the ‘equal-treatment principle’ inherent in the FAA and it the type of device or formula evincing hostility towards arbitration the FAA was enacted to overcome.”

This new Bonta decision should be welcome news for employers and for now brings the Ninth Circuit into alignment with sister circuits across the nation that have similarly found the FAA preempts similar state rules.  The State will likely seek rehearing en banc or review by the U.S. Supreme Court.  If you have any questions regarding our arbitration practice you can contact Jerry Hawxhurst or Kyle Foltyn-Smith to discuss.