Ninth Circuit Blocks California’s Ban on Mandatory Arbitration for Employees

A recent ruling by judges of the San Francisco-based Ninth U.S. Circuit Court of Appeals gives employers in California the power to force their employees to sign arbitration agreements as a condition of employment. This is a victory for the Chamber of Commerce and the other groups that sued California to challenge the ban on mandatory arbitration for workers. Speaking after the February 15, 2023, ruling, Chamber of Commerce attorney Jennifer Dickey said she was pleased with the verdict. 

According to the U.S. Court of Appeals, the Federal Arbitration Act (FAA) preempts Assembly Bill 51, a law prohibiting California employers from needing job applicants or employees to sign arbitration contracts. Usually, when state and federal laws conflict, federal law preempts or displaces state law. This is because of the Supremacy Clause. According to this clause, federal law generally takes precedence over state laws. The panel majority stated that since the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and Assembly Bill 51 hinders this purpose, the FAA preempts Assembly Bill 51. 

In 2021, the three-judge panel partially upheld Assembly Bill 51, but in 2022, the panel decided to reconsider the law’s legality. 

According to supporters of mandatory arbitration, this alternative dispute resolution method provides a cheaper alternative to court that both workers and employers benefit from. On the other hand, critics of compulsory arbitration believe that arbitration usually favors employers over workers. Critics believe that requiring job applicants and employees to sign arbitration agreements prevents them from seeking the justice they deserve for employment law violations. 

However, while the FAA has preempted AB 51, it is crucial to note that there is an exception for sexual harassment and assault. In 2022, President Joe Biden signed into law a Bill voiding contracts requiring arbitration of workplace sexual harassment or assault claims. In other words, people alleging sexual harassment or assault have the right to choose which legal path to pursue, be it going to court or arbitrating the matter. 

So, what next for Assembly Bill 51? California can try to revive the Bill by asking the Ninth Circuit or the Supreme Court to review this recent decision. 

Does Arbitration Favor Employers Over Workers?

When workers or job applicants sign an arbitration agreement, they give up their Constitutional right to trial by jury. After signing an arbitration agreement, it means all employment-related disputes, including discrimination, are decided by a third party called an arbitrator hired by the employer. Employers defend mandatory arbitration by pointing out that arbitration is a less expensive and faster way to resolve employment-related issues.

Indeed, arbitration can be less expensive and time-consuming compared to going to court, and both employers and workers can benefit from this. However, by signing an arbitration agreement, a person loses their right to appeal. Second, during arbitration, parties generally do not have equal discovery rights. Often, employees are at a disadvantage since the employer has control of the evidence the employee’s attorney needs to build a robust case. Finally, because employers hire arbitrators several times, arbitrators may be less favorable to employees. 

Contact a California Employment Lawyer

Contact a qualified California employment lawyer near you if you need help with an employment-related case.