Employment laws are regularly changing, and to stay compliant with all the updates, employers need to stay up to date on laws that can potentially affect their business. Recently, a Ninth Circuit panel partially upheld Assembly Bill 51 (AB 51) in a 2-1 split decision, which pertains to a specific condition of employment. To help you better understand and navigate this amendment regarding arbitration agreements, we have put together everything you need to know about the Ninth Circuit Ruling and AB 51. 

What is AB 51?

AB 51 is a state law enacted in January 2020 that prohibits California employers from requiring employees to agree to arbitration as a condition of employment covered by the Federal Arbitration Act (FAA). The following is a summary of the AB 51 regulations that went into effect (Cal. Lab. Code § 432.6.):

• Bans mandatory arbitration agreements for any claims arising under the California Fair Employment and Housing Act or the California Labor Code as a condition of employment or receipt of any employment-related benefit.
• Establishes criminal and civil penalties for employers that violate the regulations of AB 51 — including “imprisonment in a county jail, not exceeding six months, or … a fine not exceeding one thousand dollars ($1,000), or both.” 
• Safeguards against retaliation and discrimination for workers who do not want to consent to a mandatory arbitration agreement or who file a claim to enforce AB 51. 
• Pertains to arbitration agreements entered into or modified on or after January 1, 2020. 
• Is not relevant to arbitration agreements otherwise enforceable under the FAA.

Ninth Circuit Ruling

On September 15th, 2021, in the Chamber of Commerce of the U.S. vs. Bonta, the Ninth Circuit partially upheld Assembly Bill 51 (AB 51) in a 2-1 split decision. This decision vacated the district court’s initial ruling that inhibited the enforcement of AB 51. The Ninth Circuit remanded this case to the district court for further proceedings. According to the court, AB 51 does not run against the FAA because it regulates “pre-agreement employer behavior” that does not impede the validity or enforcement of an arbitration agreement. It also highlighted that AB 51’s stated objective – “to assure that entry into an arbitration agreement by an employer and employee is mutually consensual” – is consistent with the congressional objective for the FAA to not forestall state laws requiring “voluntary” arbitration agreements.

The court also stated that AB 51 does not generate a contract defense or “make invalid or unenforceable any agreement to arbitrate, even if such agreement was consummated in violation of the statute.” What this means is that the Ninth Circuit’s decision does not impact the enforceability of executed arbitration agreements for employers, including mandatory arbitration agreements that already exist. In this vein, employees are not able to nullify a signed arbitration agreement solely because of an infraction of AB 51. However, for new workers or those who haven’t signed an arbitration agreement yet, this ruling maintains AB 51’s veto on companies demanding that such workers sign arbitration agreements as a condition of employment, and continues to ban companies from retaliating against a worker for refusing to sign.

Additionally, despite the ruling getting rid of the burdens of civil and criminal penalties associated with an executed arbitration agreement, fines and penalties could still be imposed if the employer were to fire, reject, or retaliate against a worker or applicant who declined to sign an arbitration agreement.

However, even with the ruling, it does not mean that the enforcement of AB 51 will be immediately imposed. This decision will come into being only when the court issues its “mandate” renouncing jurisdiction over the case. A Petition of Rehearing and a Petition for Writ of Certiorari to the U.S. Supreme Court can overturn the Ninth Circuit’s ruling. As a matter of fact, the Chamber of Commerce has already been granted an extension of time to file a Petition for Rehearing, which insinuates that a request for rehearing is imminent in the near future. If and when the petition is filed, the Chamber can move to keep issuance of the Ninth Circuit’s mandate for a few months, pending review by the U.S. Supreme Court.

What Does This Mean For California Employers?

Because of the delay in issuing the mandate and lifting AB 51’s injunction, many California employers who use mandatory arbitration agreements have become subject to risk and uncertainties. As we anticipate the U.S Chamber of Commerce’s rehearing, California employers should take time to consult legal counsel about how AB 51 applies to their existing policies, programs, and practices on arbitration agreements. In doing so, employers will be ready to take action once the final resolution of the case is determined. If any part of AB 51 remains after further judicial examination, companies that make use of arbitration agreements will need to make certain that these agreements are completely voluntary. If an employer is to revise an arbitration agreement, make sure to keep in mind that “opt-out” clauses do not exempt an arbitration agreement from AB 51 and will still be considered a “condition of employment.”

Key Takeaways

In light of the recent ruling by the Ninth Circuit, it is essential to ensure that California employers reexamine and reevaluate their policies on arbitration agreements to stay compliant. If companies are found non-compliant, they can be fined with large liabilities and penalties. To stay on top of this change, we urge all California employers who are currently using mandatory arbitration agreements and those who want to continue requiring workers to enter into arbitration agreements to enlist the help of attorneys to examine various options and the affiliated risks. If you need any assistance with navigating arbitration agreements or AB 51, contact Hackler Flynn & Associates.

DISCLAIMER: Content within this post should not be considered legal advice and is for informational purposes only. Communications made through this post do not create an attorney-client relationship. Hackler Flynn & Associates is not responsible for any content that you may access from third-party resources that may be accessed through or linked to this post. Hackler Flynn & Associates is only licensed to practice in California.