California Employers May Require Employees to Agree to Arbitration as a Condition of Employment
On January 1, 2024, Judge Kimberly J. Mueller of the United States District Court for the Eastern District of California put the final nail in the coffin to invalidate California Assembly Bill 51 (“AB 51”) that banned employers from requiring employees to agree to arbitrate their claims as a condition of employment.
Judge Mueller’s order ended four years of litigation, which was initiated in 2019 by the California Chamber of Commerce after Governor Newsom signed AB 51, and just weeks before the ban was to become effective. In addition to banning forced arbitration, AB 51 imposed civil and criminal penalties on employers who violated the law. Judge Mueller’s January 1, 2024, order concluded that the Federal Arbitration Act preempts AB 51, and thus AB 51 is unenforceable.
Judge Mueller’s January 1, 2024, order came as no surprise. In February 2023, the Ninth Circuit Court of Appeal, in Chamber of Commerce of the United States of America v. Bonta (2023) 62 F.4th 473, affirmed an earlier ruling from Judge Mueller granting a preliminary injunction against enforcement of AB 51. Following the Ninth Circuit’s ruling, the California Attorney General’s office stated that it was “evaluating its options,” including possibly seeking review of the decision from the United States Supreme Court. However, ultimately, the State of California opted not to pursue further review of the decision.
This ends a chapter of uncertainty for employers who wish to avoid litigating disputes with their employees in court before a jury. It is now clear that employers in California may require current and prospective employees to agree to private, binding arbitration as a condition of employment. However, employees may still challenge the enforceability of arbitration agreements based on arguments that the agreement is unconscionable, or that the employee did not consent to the agreement. Additionally, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act signed by President Biden in March 2022 prohibits employers from requiring prospective and current employees from arbitrating claims of sexual harassment and sexual assault.
For more information or specific guidance on how this decision can impact your business, please contact Mary Watson Fisher.