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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 determination upheld parts of Meeting Invoice 51 (“AB 51”), a California regulation that prohibits employers from requiring that workers signal an arbitration settlement as a situation of employment. The panel’s determination to rehear the attraction is notable as a result of it means that the panel could rule that the Federal Arbitration Act (“FAA”) preempts AB 51 in its entirety following the U.S. Supreme Court docket’s latest determination in Viking River Cruises, Inc. v. Moriana. The Supreme Court docket in Viking River Cruises held that California regulation precluding the division of PAGA actions into particular person and non-individual claims via 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 regulation turned efficient. Below AB 51, it’s illegal for employers to require that workers or candidates signal an settlement to arbitrate claims underneath 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, reasonably than invalidate the arbitration settlement, AB 51 as a substitute 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 regulation’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 premise 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 focusing 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 Unique Ruling

As mentioned beforehand by this weblog, a divided Ninth Circuit panel reversed the District Court docket’s determination partially on the grounds that AB 51 is just not completely 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 regulation doesn’t invalidate or render unenforceable arbitration agreements lined by the FAA.” Due to this fact, 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 determination was closely criticized within the dissent issued by Decide 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 to 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.”

Choice 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 determination 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 Decide Carlos Lucero, sitting by designation from the Tenth Circuit, voting towards rehearing. The Ninth Circuit has but to set a date for the rehearing.

Foremost Takeaways

Decide Fletcher’s determination to withdraw the opinion he beforehand supported means that he could now agree with Decide Ikuta that AB 51 is preempted in its entirety by the FAA. With the prior Ninth Circuit determination now withdrawn, the District Court docket’s preliminary injunction enjoining enforcement of AB 51 stays in place pending the rehearing determination. 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 determination, ought to intently monitor the attraction and seek the advice of with skilled employment counsel on how greatest to proceed.

This text is just not an unequivocal assertion of the regulation, however as a substitute presents some potential points to contemplate with counsel. That is supplied for informational functions solely and doesn’t represent authorized recommendation and isn’t supposed to type an lawyer shopper relationship. Please contact your Sheppard Mullin lawyer contact for added info.

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