Wednesday, March 1, 2023

Arb Going Back To Cali

The U.S. Court of Appeals for the Ninth Circuit recently blocked a California law that prohibited employers from requiring their workers to resolve legal disputes in private arbitration, ruling that it conflicts with federal law. A panel affirmed the district court’s grant of a preliminary injunction barring enforcement of California’s Assembly Bill (AB) 51 with respect to arbitration agreements governed by the Federal Arbitration Act (FAA). Since 2020, California was first to ban mandatory arbitration of all employment-related disputes in the wake of the #MeToo movement. New York and New Jersey similarly passed laws prohibiting mandatory arbitration of sexual harassment and discrimination claims, but California's statute was much broader. Employers were prohibited from requiring individuals to sign as a condition of employment or employment-related benefits arbitration agreements concerning disputes arising under the California Fair Employment and Housing Act or Labor Code. In affirming the district court’s grant of a preliminary injunction, a majority of the Ninth Circuit panel used U.S. Supreme Court precedent that states rules burdening the formation of arbitration agreements are an obstacle to legislative intent of and preempted by the FAA. The court also noted the U.S. Court of Appeals for the First and Fourth Circuits reached similar conclusions when confronted with state laws that attempted to prevent parties from entering arbitration agreements. The court rejected arguments from the State of California that it should sever clauses that were deemed preempted by the FAA and leave the remainder of the law intact. The court found AB 51 could not be dissected as the statute’s provisions all work together to burden the formation of arbitration agreements and there was no authority in the legislation to sever the penalty portions of the law. If the State of California does not get a rehearing en banc or pursue further appeal, the matter will return to the district court to proceed for a final determination on the legality of AB 51. See reporting here-- and and latest decision here--