California’s AB 51, the 2019 addition to the California Labor Code, which prohibits employers from requiring applicants for employment and employees to waive any right, forum, or procedure in which the employee could raise an action against the employer for a violation of any of a specific group of states as a condition of employment, continued employment, or the receipt of employee benefits. The bill also prohibits threatening, retaliating against, discriminating agents, or terminating the employment of any employee or applicant for employment because of a refusal to waive any right, forum, or procedures in which the employee could raise an action. In other words, AB 51 prohibits mandatory pre-dispute arbitration agreements for California employers and employees.

Almost as soon as the statute became law, litigation to overturn it began. Having gone through a number of appeals and returns to the lower courts, the case, in October 2021, was heard once again by the Ninth Circuit Court of Appeals. The Ninth Circuit held, essentially, that the law prohibits employers from conditioning certain things about the mandatory execution of a pre-dispute arbitration agreement. In such a case, the employer imposing the requirement can be held liable if an employee is terminated upon a refusal to execute. Nonetheless, said the court, if a signed arbitration agreement does exist, it is enforceable, and courts must do so. The court also lifted the injunction against the enforcement of the statute.

A petition for rehearing of this decision has been filed.

Thus, at the present time, California employers may not condition employment, continued employment, or receipt of benefits upon the execution of an arbitration agreement, but the courts will enforce any such agreement which is in place. Moreover, the decision continues to block the civil and criminal penalties provided for in the law for employers who do obtain arbitration agreements in violation of the law. In other words, AB 51 still prohibits mandatory arbitration agreements but utterly lacks viable provisions for enforcement of its terms.

The California legislature drafted AB 51 in an attempt to avoid pre-emption under the Federal Arbitration Act, which allows for arbitration agreements in employment. The challengers alleged by AB 51 treated arbitration agreements unequally. The District Court agreed, but the Ninth Circuit disagreed, stating the AB 51 was entirely aimed at conduct taking place prior to the existence of an agreement. However, the Ninth Circuit found that the statute’s criminal and civil penalties did treat arbitration agreements differently and thus violated the pre-emption of the Federal Arbitration Agreement and could not be enforced. The dissent noted that this means if an employer succeeds in obtaining an illegal arbitration agreement, the employee may not use the enforcement procedures against it. On the other hand, if the employer asks for but does not get the arbitration agreement, AB 51’s civil and criminal penalties may be imposed.

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- Claire Kalia

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