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Appeals court rejects limits to California employer-mandated arbitration

On Behalf of | Mar 10, 2023 | Employee Rights

Few people know what arbitration is but chances are you have signed an agreement with your employer waiving your right to have your dispute with your employer decided by a jury.  Instead, any employment dispute will be decided by an arbitrator—paid for by your employer.  The system is hardly fair for employees and more employers are forcing employees to sign arbitration agreements as a condition of employment.  California passed Assembly Bill 51, which went into effect on January 1, 2020.  AB 51 prohibited employers in California from requiring employees to sign as a condition of employment or employment-related benefits arbitration agreements concerning disputes arising under the California Fair Employment and Housing Act (i.e., for discrimination, harassment, retaliation, etc.) or California Labor Code (i.e., whistleblower, wage and hour, etc.)

In mid-February, in a reversal from a 2021 decision, the 9th U.S. Circuit Court of Appeals struck down a AB 51 finding that it is preempted (superseded) by the 1925 Federal Arbitration Act (FAA).  The FAA considers arbitration agreements involving interstate or foreign commerce valid, irrevocable and enforceable.

California Lawmakers Tried to Structured AB 51 to Avoid Preemption by the FAA

State and federal courts have cited the nearly century-old FAA for decades in striking down previous attempts to limit arbitration agreements by employers. The 9th Circuit Court’s decision to withdraw its prior ruling and grant a rehearing is unusual. It may be due, in part, to a recent U.S. Supreme Court ruling that held that California’s Private Attorneys General Act was preempted by the FAA.

AB 51 focused on employer conduct. The goal was to protect employees by making these contracts consensual, not mandatory.

What does this mean for workers?

Sadly, the 9th Circuit’s ruling means rolling back the rights of millions of workers in California who would have benefited from AB 51’s passage.  The U.S. Congress must pass legislation to overturn FAA to protect workers’ rights.  Arbitration, where the judges are paid for by the employer, is not a fair forum for employees to seek to hold their employers accountable for violating their rights and obtaining justice.  Congress has acted in the past to limit the FAA.  For example, Congress created an exemption for cases related to sexual assault and harassment. The law went into effect last year, voiding contracts that require arbitration for these types of claims. The #MeToo movement helped expose that arbitration agreements were systematically used to keep sexual misconduct private and protect repeat offenders.

As for AB 51, it may not be the end of the road just yet. The California Attorney General Rob Bonta says his office is reviewing the decision and “assessing next steps.” The state could file a petition for a larger 9th Circuit Court panel to hear the case or appeal directly to the U.S. Supreme Court.

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