9th Circuit to Judge Regulation of Mandatory Employment Arbitration

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On December 7, the Ninth Circuit Court of Appeals is scheduled to hear oral argument in a case of particular relevance to employers who use arbitration to resolve disputes with employees. The case, Chamber of Commerce of the U.S. v. Becerra, considers whether states can prevent employers from conditioning an offer of employment or receipt of employment benefits on an employee's agreement to arbitrate (rather than litigate) any future disputes with the company. In 2019, the State of California passed Assembly Bill 51 (AB 51)-a law that would have done just that. But a California federal judge blocked the law before it could go into effect, reasoning that the Federal Arbitration Act's (FAA's) pro-arbitration policy takes precedence over (or "preempts") the state law. The State appealed to the Ninth Circuit.

AB 51 is the latest attempt by the California legislature to limit the use of mandatory arbitration clauses in the employment arena. Previous bills have either been vetoed by the California Governor or tossed out by courts as likely to be preempted by the FAA. The FAA evinces a strong federal policy to facilitate and enforce contractual arbitration provisions-a policy so strong that it preempts and therefore blocks state laws that are inconsistent. Though the legislature designed AB 51 to be more refined than earlier iterations, the federal district court found it still ran afoul of the FAA. The State argued that AB 51 would not completely prohibit employees and employers from consenting to arbitration; it would simply prevent employers from requiring arbitration clauses as a take-it-or-leave-it proposition in employment negotiations. Yet in design and practical effect, Judge Kimberly Mueller held, "AB 51 singles out the requirement of entering into arbitration agreements and thus subjects these kind of agreements to unequal treatment." Because the FAA disallows placing arbitration agreements on unequal footing with other contracts in precisely this way, the court held AB 51 was likely to be preempted by the FAA and accordingly enjoined the law from taking effect. Now the Ninth Circuit will assess the district court's decision, creating new precedent on the limits of FAA preemption and the ability of employers to mandate arbitration.

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