9th Circuit Broadly Maintains California’s Ban on Arbitration Agreements as a Condition of Employment | Davis Wright Tremaine LLP

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On September 15, 2021, the 9th Circuit of United States Chamber of Commerce v. Bonta overturned (2-1), in part, a preliminary injunction and ruled that section 432.6 of the California Labor Code – which prohibits employers from requiring employees to accept arbitration agreements as a condition of employment from 1 January 2020 – may, in the aggregate, part, be applied.

The effect? In California, employers cannot require employees to sign arbitration agreements as a condition of employment. (See our previous blog post on this legislation here.)

Background

AB 51 added section 432.6 to the Labor Code, which prohibits employers from requiring applicants or employees to waive any right, forum or procedure for violation of the FEHA or the Labor Code as a condition of employment or retention of employment, or receipt of any employment-related benefit. The law does not prohibit arbitration of employment claims, but specifies that any agreement to arbitrate must be voluntary.

On December 30, 2019, two days before the new law came into force, a federal district court granted a temporary restraining order. A preliminary injunction was then granted on January 31, 2020. (See our blog post on the temporary restraining order and preliminary injunction here and here.)

The court’s decision

In reversing the decision, the 9th circuit relied on the principles of preemption and statutory interpretation. The court ruled that the Federal Arbitration Act (FAA):

  • (1) Does not take precedence over section 432.6 of the Labor Code insofar as it applies to prohibitions on making arbitration agreements a condition of employment; corn
  • (2) Prevents the law from imposing civil or criminal penalties if an employee actually signs an arbitration agreement.

Note that employers may still be subject to civil and criminal penalties if an employee is fired for not signing an arbitration agreement, or if a candidate is not hired because they refused to sign the agreement. arbitration.

As Justice Ikuta noted in her strong dissent, the majority decision results in a strange paradox: if an employer offers an arbitration agreement to a potential employee as a condition of employment and the potential employee performs the ‘agreement, the employer cannot be held civilly or criminally responsible, but if the potential employee refuses to sign and the employer refuses to hire that potential employee on that basis or fires an employee for not signing, l The employer is subject to civil and criminal liability.

Remember for employers

The Bonta The decision will likely be appealed to the United States Supreme Court or a petition for bench review may be filed. That said, for now, employers should still consider the following:

  • Section 432.6 of the California Labor Code applies only to arbitration agreements that have been entered, amended or extended on or after January 1, 2020.
  • If you have required employees to sign arbitration agreements as a condition of employment after January 1, 2020, we suggest that you consult a lawyer to determine if your agreement needs to be amended to comply with section 432.6 of the Labor Code.
  • In order to comply with section 432.6 of the California Labor Code, employers must use membership provisions instead of exclusion provisions, with the arbitration agreement being a stand-alone document (i.e. not not part of an employment contract), including specific language. this makes it clear that entering into the arbitration agreement is voluntary and not a condition of employment or an employment benefit, and specifically stating that there will be no retaliation if an employee chooses not to sign the agreement.

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