Tuesday, October 4, 2022
HomeEmploymentNinth Circuit Grants Rehearing on California Regulation Banning Necessary Employment Arbitration Agreements

Ninth Circuit Grants Rehearing on California Regulation Banning Necessary Employment Arbitration Agreements


The Ninth Circuit Court docket of Appeals panel that initially determined Chamber of Commerce v. Bonta final fall lately issued an order withdrawing its prior opinion and granting a panel rehearing. The divided panel’s authentic choice upheld parts of Meeting Invoice 51 (“AB 51”), a California legislation that prohibits employers from requiring that workers signal an arbitration settlement as a situation of employment. The panel’s choice to rehear the enchantment is notable as a result of it means that the panel might rule that the Federal Arbitration Act (“FAA”) preempts AB 51 in its entirety following the U.S. Supreme Court docket’s latest choice in Viking River Cruises, Inc. v. Moriana. The Supreme Court docket in Viking River Cruises held that California legislation precluding the division of PAGA actions into particular person and non-individual claims by means of an settlement to arbitrate was preempted by the FAA.

Background

AB 51 applies to any arbitration settlement entered into or modified on or after January 1, 2020, the date the legislation turned efficient. Underneath AB 51, it’s illegal for employers to require that workers or candidates signal an settlement to arbitrate claims beneath the California Truthful Employment and Housing Act (“FEHA”) and/or the Labor Code as a situation of employment, continued employment, or receipt of employment-related advantages. Considerably, slightly than invalidate the arbitration settlement, AB 51 as an alternative topics an employer to civil and legal penalties. 

Upon AB 51 taking impact in early 2020, the U.S. Chamber of Commerce, amongst others, instantly sought to enjoin the legislation’s enforcement. On January 31, 2020, the U.S. District Court docket for the Jap District of California granted the request for a preliminary injunction, thereby enjoining enforcement of AB 51 on arbitration agreements ruled by the FAA. The idea for the District Court docket’s ruling was that AB 51 (1) violates the FAA by placing arbitration agreements on an unequal footing with different contracts by particularly concentrating on arbitration agreements and imposing the next consent requirement on them; and (2) interferes with the FAA’s purpose of selling arbitration by subjecting employers who search to enter into arbitration agreements to civil and legal penalties. The State of California appealed the preliminary injunction to the Ninth Circuit.

Ninth Circuit’s Authentic Ruling

As mentioned beforehand by this weblog, a divided Ninth Circuit panel reversed the District Court docket’s choice partly on the grounds that AB 51 shouldn’t be fully preempted by the FAA. The bulk concluded that as a result of AB 51 addresses solely “pre-agreement employer habits” (versus the agreements themselves), the legislation doesn’t invalidate or render unenforceable arbitration agreements coated by the FAA.” Subsequently, the bulk held that the FAA preempts AB 51 solely with respect to its provisions that impose civil or legal penalties on employers who execute arbitration agreements ruled by the FAA. 

The bulk’s choice was closely criticized within the dissent issued by Choose Sandra Ikuta. The dissent famous that U.S. Supreme Court docket precedent clearly holds that the FAA invalidates state legal guidelines that impede the formation of arbitration agreements. Thus, regardless of California’s try and evade the FAA by specializing in pre-agreement employer habits, “too-clever-by-half workarounds and covert efforts to dam the formation of arbitration agreements are preempted by the FAA simply as a lot as legal guidelines that block enforcement of such agreements.”

Resolution on Request for Rehearing

The U.S. Chamber of Commerce (and others) instantly filed a petition for rehearing en banc. In February 2022, the unique Ninth Circuit panel issued an order deferring consideration of the rehearing petition till after the Supreme Court docket’s choice in Viking River Cruises. On August 22, 2022, the panel issued an order withdrawing its prior opinion and granting a panel rehearing. That order additionally was divided, with Judges Ikuta and William Fletcher voting in favor of a rehearing and Choose Carlos Lucero, sitting by designation from the Tenth Circuit, voting in opposition to rehearing. The Ninth Circuit has but to set a date for the rehearing.

Fundamental Takeaways

Choose Fletcher’s choice to withdraw the opinion he beforehand supported means that he might now agree with Choose Ikuta that AB 51 is preempted in its entirety by the FAA. With the prior Ninth Circuit choice now withdrawn, the District Court docket’s preliminary injunction enjoining enforcement of AB 51 stays in place pending the rehearing choice. Employers who proceed to require arbitration agreements as a situation of employment, or who’re contemplating rolling out arbitration agreements following the Viking River Cruises choice, ought to carefully monitor the enchantment and seek the advice of with skilled employment counsel on how greatest to proceed.

This text shouldn’t be an unequivocal assertion of the legislation, however as an alternative affords some potential points to contemplate with counsel. That is offered for informational functions solely and doesn’t represent authorized recommendation and isn’t meant to kind an lawyer consumer relationship. Please contact your Sheppard Mullin lawyer contact for extra info.

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