Sanford Heisler Sharp LLP | 20th Anniversary 2004 - 2024
Sanford Heisler Sharp LLP | 20th Anniversary 2004 - 2024

The Ninth Circuit Reverses Course and Finds Calif. AB 51 Preempted by the FAA

by | March 1, 2023 | Employment Discrimination

In September 2021, a three-judge Ninth Circuit panel held that AB 51, a California law designed to protect employees from forced arbitration, was largely not preempted by the Federal Arbitration Act (FAA).

The same panel recently elected to revisit its decision following the Supreme Court’s ruling in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022). This time, the Ninth Circuit reversed course and held that AB 51 is preempted by the FAA.

What Is AB 51?

As explained in a previous post, AB 51 is a California law designed to prevent employees and job applicants from being required to waive their rights under the California Fair Employment and Housing Act (FEHA) or the California Labor Code as a condition of employment. The law prohibits the imposition of forced arbitration agreements, which waive an employee’s rights to pursue their claims in court and to try those claims to a jury of their peers.

While AB 51 bars an employer from requiring an employee or job applicant from entering into an arbitration agreement as a condition of employment, it provides that if the parties do enter into an arbitration agreement, the agreement is enforceable. Therefore, the law was specifically crafted to avoid a conflict with the FAA.

Why Was the Law Deemed Preempted by the FAA?

Despite this careful drafting, the Court rejected California’s argument that because AB 51 regulates the conduct of employers before an arbitration agreement is formed, rather than affecting the validity or enforceability of the executed arbitration agreement, it does not conflict with the FAA. The Ninth Circuit instead held that “AB 51’s deterrence of an employer’s willingness to enter into an arbitration agreement is antithetical to the FAA’s ‘liberal federal policy favoring arbitration agreements’” and is therefore preempted.[1]

What Is the Impact on Employees?

What is completely disregarded here is the employee’s and society’s interest in the enforcement of labor and employment laws and protections. As interpreted by the courts, the FAA acts as a strong deterrent to compliance with these laws. Companies can simply impose arbitration as a condition of employment and thereby obviate employee claims and avoid accountability in many circumstances.

Accordingly, this decision represents a major blow to states’ efforts to serve as laboratories of justice and propound laws that provide protection from hostile federal arbitration jurisprudence – the approach urged in the article co-authored with my colleagues Jeremy Heisler and Andrew Melzer, “States – The Final Frontier: How State Law and State Courts Can Provide Avenues for Justice and Resist the U.S. Supreme Court’s ‘Lochner Lite’ Anti-Employee and Anti-Consumer Agenda.”

Given courts’ hostility to such state laws, it is imperative to pass federal legislation geared towards protecting employees from forced arbitration.

We implore Congress to reintroduce and enact the Forced Arbitration Injustice Repeal (FAIR) Act—H.R. 963/S. 505 in the last session of Congress. It is long past time to restore the full rights and protections of employment and civil rights laws to all employees nationwide.

[1] Chamber of Com. of the United States of Am. v. Bonta, No. 20-15291, 2023 WL 2013326, at *10 (9th Cir. Feb. 15, 2023) (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).