Litigation Continues Over California's Mandatory Employment Arbitration Ban

​The battle concerning California's AB 51—the law seeking effectively to ban mandatory employment arbitration in California—continues to rage.

On Oct. 20, the U.S. Chamber of Commerce, the lead plaintiff challenging AB 51, filed a petition for rehearing en banc with the 9th U.S. Circuit Court of Appeals, seeking to reverse the 9th Circuit's decision in Chamber of Commerce of the United States of America v. Bonta, No. 20-15291 (September 16, 2021), partially upholding AB 51.

The Chamber's most recent filing asks the full 9th Circuit to reconsider the 2–1 decision of a three-judge panel holding that California law may prohibit employers from seeking, on a mandatory basis, arbitration agreements with their employees, but only if an arbitration agreement is not consummated. The panel's decision holds that courts, pursuant to the Federal Arbitration Act (FAA), must still enforce signed arbitration agreements; however, an employer still violates the California Labor Code if it conditions employment upon the execution of an arbitration agreement. Moreover, an employer can be held liable for a violation of law if an employee refuses to sign an arbitration agreement. The court's decision, if allowed to stand, could chill any attempt by employers to use mandatory arbitration agreements with their employees.

The petition for rehearing rests significantly upon Judge Sandra Ikuta's fierce dissent in the underlying panel decision. The petition urges the full court to rehear and reconsider the case on the ground that the panel decision—which the Chamber contends relies upon a faulty distinction between formation and enforcement of an arbitration agreement—violates the authority of the U.S. Supreme Court and creates a split between the 9th Circuit, on one hand, and the 1st Circuit and 4th Circuits on the other. The petition argues that the FAA pre-empts state laws that interfere with the enforcement or formation of arbitration agreements, and it rejects the panel's assertion that the FAA does not impact state laws governing the formation of arbitration agreements.

The court will decide whether to rehear the case en banc. In the meantime, the trial court's decision enjoining enforcement of the law remains in effect; however, the Ninth Circuit's panel decision remains on the books. The court's decision on rehearing could take months.

Jack S. Sholkoff is an attorney with Ogletree Deakins in Los Angeles. © 2021 Ogletree Deakins. All rights reserved. Reposted with permission.