Ninth Circuit Hears Oral Arguments On Employment Arbitration Restrictions

Seyfarth Synopsis: The legal battles over Assembly Bill 51 (AB 51)—which attempts to prohibit mandatory employment arbitration agreements—continue. The Ninth Circuit heard the much anticipated oral arguments earlier this month, but a decision has not yet been issued.

As we wrote about here, in February 2020, the Eastern District of California granted a preliminary injunction against enforcement of AB 51 by the State of California. On December 7, 2020, the Ninth Circuit heard oral arguments on the California Attorney General’s appeal to overturn the injunction. Until the Ninth Circuit weighs in, the injunction continues to halt State enforcement of AB 51.

As a reminder, AB 51 bans employers from requiring applicants or employees to sign arbitration agreements for claims brought under California’s Fair Employment and Housing Act (FEHA) or the California Labor Code. The arbitration ban applies even if the agreement provides an opt-out procedure, in that AB 51 requires employment arbitration agreements to be completely voluntary. AB 51 also prohibits employers from retaliating against applicants or employees who reject employment arbitration provisions, and provides both civil and criminal penalties for businesses that violate the statute.

The Ninth Circuit panel consists of Judges Fletcher, Ikuta, and Lucero. The three jurists posed difficult questions to both sides. There was some discussion about whether AB 51 could be limited to provide that mandatory arbitration is permissible as to contractual claims, but not as to claims asserting statutory rights (e.g., wage and discrimination claims). The Ninth Circuit panel also seemed interested in whether AB 51’s criminal provisions unlawfully impede contract formation.

It is impossible to predict exactly when, and how, the Ninth Circuit will rule. As we await the decision, it is important to remember the statutory provisions that are not implicated by the injunction, and that, therefore, remain in force. Namely, that employers may not threaten, retaliate, discriminate against, or terminate any applicant or employee for refusing to consent to the waiver of any right, forum, or procedure for a violation of the FEHA or Labor Code.