California employers will recall that in late 2019, California Governor Gavin Newsom signed Assembly Bill 51 (“AB 51”) into law. AB 51 essentially outlawed the practice of requiring employees to sign arbitration agreements with their employers. Prior to that, requiring employees to agree to arbitrate disputes with their employers was a well-accepted risk management tool utilized by businesses and business owners across the state. AB 51 was a decidedly pro-employee enactment, which the business community roundly criticized. Various challenges were mounted in the wake of AB 51’s enactment and one in particular has substantially leveled the playing field for employers.
On February 15, 2023, in a case titled Chamber of Commerce v. Bonta, the 9th U.S. Circuit Court of Appeals ruled that AB 51 is preempted by the Federal Arbitration Act (“FAA”). Preemption is the term used to describe a determination that federal law trumps an inconsistent state law.
The FAA was enacted nearly a century ago. Its purpose has been to promote the public policy of encouraging arbitration. The Ninth Circuit analyzed how AB 51 interferes with the public policy embodied by the FAA and determined that the FAA preempts AB 51’s prohibitions on mandatory arbitration agreements.
While the State of California may ask the United States Supreme Court to reverse the Ninth Circuit’s recent Bonta decision, for the time being California employers can return to past practices and once again require employees to sign arbitration agreements for most claims, including claims of discrimination, retaliation, unpaid wages, and a litany of other claims under the California Labor Code. (Unrelated federal law continues to prohibit requiring employees to arbitrate claims of sexual harassment or sexual assault.)
If you have questions about this change in the law or would like to discuss how it can be utilized to reduce your company’s exposure to employment law litigation, please do not hesitate to contact Dunn DeSantis Walt & Kendrick. Everyday, we advise businesses and business owners on risk management strategies, including how to reduce the risks from employment law claims.