News & Updates


Arbitration as a Condition of Employment: What Employers Can Do Now with the Preemption of AB 51

Update on Arbitration Agreements in California: The Ninth Circuit and AB 51

On February 15, 2023, the Ninth Circuit Court of Appeals delivered another chapter in the arbitration agreement saga playing out in California and across the U.S. in a case called Chamber of Commerce of the U.S. v. Bonta.  You might have already heard about or seen this in legal news and on social media. Rather than being the first to report on this, we wanted to take the time to carefully consider the case and its implications for California employers.

To summarize the Bonta case, a three-judge panel for the Ninth Circuit found that the Federal Arbitration Act (FAA) preempts AB 51, a California law that prohibits the formation of mandatory employment arbitration agreements. The decision means that requiring employees to sign an otherwise reasonable arbitration agreement as a condition of employment may be permissible; whether arbitration agreements should be mandatory is a more complicated question.

More Complicated Than it Seems

This might seem like a positive decision in favor of employers—and indeed many commentators are heralding it as such.  But California employers should be wary.  All three branches of the California government have been opposed to mandatory arbitration agreements in recent years, and it is possible, if not likely, that California will try to find another way to require voluntary arbitration agreements in the near future.  This could invalidate any mandatory arbitration agreements rolled out between now and then, requiring a disruptive and confusing additional rollout after that.  The governing California Supreme Court case on arbitration agreements, Armendariz v. Foundation Health Psychare Services, Inc., still gives California courts discretion to strike down arbitration agreements that they find to be “procedurally unconscionable,” which includes undue influence and pressure in the arbitration agreement process.

The FAIR Act

This is not just an issue in California.  After a number of Supreme Court decisions found in favor of employers in arbitration disputes, Democrats in both houses of Congress introduced the Forced Arbitration Injustice Repeal Act (the FAIR Act) in February 2019.  The proposed bill would invalidate any contract that requires forced arbitration (outside of limited conditions), making judges the decisionmakers in disputes where arbitration is required, and prevent employment contracts from blocking an employee’s engagement with labor unions due to arbitration.  The bill was re-introduced in the 117th Congress after not passing the Senate in the 116th Congress.

What Does This Mean for Your Business?

California employers should be cautious in their approach to arbitration agreements.  If you have worked with our compliance team, you’re likely already aware of our recommendation that employers utilize voluntary arbitration agreements.  If you have already rolled out voluntary agreements to your employees, we find NO compelling reason to replace those with mandatory agreements.  As for replacing those voluntary agreements with mandatory ones for all new hires, that is not a decision we encourage employers to make lightly.  Requiring arbitration agreements for California employees requires careful thought and a risk tolerance assessment, along with the counsel of experienced employment attorneys, such as the attorneys at Medina McKelvey.

ABOUT MEDINA McKELVEY

We help California employers turn legal uncertainty into lasting stability

We’re more than a law firm. We’re a strategic partner for business leaders who care about their people and want to create compliant, thriving workplaces. From proactive compliance to high-stakes litigation, our full-service team equips you to lead with clarity, avoid costly missteps, and anchor trust in your culture. Discover how we can help advance your organization and team.

MEDINA McKELVEY

Roseville

925 Highland Pointe Dr

Suite 300

Roseville, CA 95678

916-960-2211

View Map

Sacramento

455 Capitol Mall

Suite 405

Sacramento, CA 95814

916-960-2211

View Map

San Francisco

201 Spear St

Suite 1100

San Francisco, CA 94105

415-660-3001

View Map

S. Lake Tahoe

3079 Harrison Ave

South Lake Tahoe, CA

96150

530-600-6528

View Map

Fresno

8050 North Palm Ave

Suite 300

Fresno, CA 93711

559-389-5097

View Map

Los Angeles

700 Flower St

Suite 1000

Los Angeles, CA 90017

213-221-1315

View Map

© Copyright 2024, Medina McKelvey LLP. All Rights Reserved. Accessibility | Privacy Policy | Terms of Use