Ninth Circuit Court of Appeals to Review Validity of Employment Arbitration Agreements Again

Shana D. Velez, Esq. 

The Ninth Circuit Court of Appeals is poised to rehear Chamber of Commerce of the United States v. Bonta,[1] a case addressing whether California Assembly Bill 51 (“AB 51”)[2] is preempted by the Federal Arbitration Act (“FAA”).  AB 51 currently prohibits California employers from requiring employees to sign mandatory arbitration agreements. The bill was enacted to ensure that employers did not retaliate against employees who did not agree to enter into arbitration agreements as a condition of their employment.  The California State Assembly was concerned with ensuring employees entered arbitration agreements voluntarily in situations where an arbitration agreement is a mandatory condition of accepting a job offer or continued employment.  AB 51 created civil and criminal penalties in the event employers required employees to sign mandatory arbitration agreements where the employee was not doing so voluntarily.

Chamber of Commerce of the United States v. Bonta – Background

Substantively, on the plaintiffs’ motion for a preliminary injunction to prevent the enforcement of AB 51, the lower court in Bonta held that the plaintiffs were likely to succeed on the merits of their argument that the FAA preempts AB 51.  The court found that because AB 51 regulates (and criminalizes) an employer’s conduct before the employer or the affected employee execute any arbitration agreement, the law effectively stifled employers’ ability to enter into mandatory arbitration agreements, which conflicted with the FAA.[3]

On appeal, however, the Ninth Circuit reversed.  The Ninth Circuit held that the FAA preempts only the criminal and civil penalty provisions because those portions of the bill create an obstacle to employers who desire to enter into arbitration agreements.[4]    But, the court held that because AB 51 only regulated the manner and method in which employers could obtain employee consents to otherwise-valid arbitration agreements (i.e. by not making such consent a condition of new or continued employment), the FAA did not preempt such requirements.

Bonta Cast Into Doubt by the U.S. Supreme Court

After the Ninth Circuit issued its decision in Bonta, the U.S. Supreme Court issued its opinion in Viking River Cruises, Inc. v. Angie Moriana,[5] which held that the FAA preempted provisions of the California’s Private Attorneys General Act (“PAGA”) which purported to prohibit any waivers of employee rights to bring collective enforcement actions under PAGA.  Under PAGA, an aggrieved employee may bring a case for employment-related violations (such as wage and hour violations) against their employer on behalf of him/herself and other employees.  Viking River found that the portions of PAGA which, like AB 51, purported to prohibit any agreements to individually arbitrate PAGA claims were preempted by the FAA.

Viking River was a major victory for employers, as the Supreme Court reinforced employers’ ability to compel individual arbitration of PAGA claims pursuant to otherwise-valid arbitration agreements between employers and employees.

Takeaways:

The Ninth Circuit’s abrupt withdrawal of its opinion in Chamber of Commerce of the United States signals that its decision that the FAA only preempts the penalty provisions of AB 51 is inconsistent with the Supreme Court’s reasoning in Viking.  It will be a substantial victory for employers if the Ninth Circuit decides that the FAA preempts AB 51 in its entirety, as such a decision will continue to validate arbitration agreements between employers and employees.

[1] Chamber of Com. of United States v. Bonta, 13 F.4th 766 (9th Cir. 2021), reh'g granted, opinion withdrawn, No. 20-15291, 2022 WL 3582697 (9th Cir. Aug. 22, 2022).

[2]Codified as Cal. Lab. Code § 432.6.

[3] Chamber of Com. of United States v. Becerra, 438 F. Supp. 3d 1078 (E.D. Cal. 2020), aff'd in part, vacated in part, rev'd in part sub nom. Chamber of Com. of United States v. Bonta, 13 F.4th 766 (9th Cir. 2021), reh'g granted, opinion withdrawn, No. 20-15291, 2022 WL 3582697 (9th Cir. Aug. 22, 2022).

[4] Chamber of Com. of United States v. Bonta, 13 F.4th 766 (9th Cir. 2021), reh'g granted, opinion withdrawn, No. 20-15291, 2022 WL 3582697 (9th Cir. Aug. 22, 2022

[5] Viking River Cruises v. Angie Moriana,142 S. Ct. 1906 (U.S. Aug. 22, 2022).