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Immediate Change of Arbitration Law in Employment

Posted by Jon A. Dieringer | Sep 20, 2021 | 0 Comments

In a split 2-1 decision, last week the 9th Circuit Court of Appeal upheld a California law that barred businesses from requiring their workers enter into arbitration agreements to resolve discrimination, harassment and Labor Code disputes.

By way of background, Dispute Resolution Policies and Arbitration Agreements are effective and expediate measures businesses often use to resolve employment disputes, and to avoid costly employment litigation or class actions in Court.

The California legislature and plaintiff trial attorneys have routinely attacked employment arbitration agreements.   They mostly prefer costly and time consuming court litigation.  However, federal law approves of arbitration to resolve employment disputes and has routinely reversed California's attacks against arbitration.   As part of the legislature's ongoing attack against arbitration, it passed Assembly Bill 51 (AB 51), and it was signed into law by Governor Newsom in 2019.  AB 51 invalidated arbitration agreements that are a condition of employment, and it penalized employers with criminal and civil sanctions.

After AB 51 was signed into law, but before it took effect in 2020, a federal court enjoined its enforcement.  That federal court found AB 51 violated federal law that upholds the validity and enforceability of arbitration agreements, so it also violated the Supremacy clause of the US Constitution.

Last week, on September 15, 2021, in a split 2-1 decision, the federal  9th  Circuit Court of Appeal reversed the lower federal court and lifted the injunction against AB 51.

The case was Chamber of Commerce of the U.S. v. Bonta, and you may read that decision at this link:    https://cdn.ca9.uscourts.gov/datastore/opinions/2021/09/15/20-15291.pdf

As a result of the 9th Circuit's decision, the Court permitted enforcement of AB 51 (without its criminal or civil penalties), thereby prohibiting arbitration agreements as a condition of employment.

The 9th Circuit is the most reversed Circuit in the United States federal court system, and the scathing dissent criticized AB 51 as an unlawful attempt to sidestep federal law.  Judge Sandra Ikuta's dissent related California's attacks against arbitration to a "clown bop bag" that responds to getting "smacked down for violating the Federal Arbitration Act" by "bouncing back with even more creative methods to sidestep the law."

That split decision will likely be contested by further court review in the 9th Circuit or Supreme Court.   If so, the decision would be automatically stayed until rehearing.  While AB 51's anti-arbitration rules are currently in effect, that may be short lived with an anticipated motion to stay the mandate in the 9th Circuit, Supreme Court, or both.   There are good reasons to believe a motion to stay would be granted.   So, it may be too early to tell at this point how this ruling will impact California Employers.

We at Dieringer Law Group continue to review these developments, and will keep you advised.  Every employer who uses an arbitration agreement as part of a Dispute Resolution Policy should confer with their legal counsel in considering whether and how to revise it, or whether to continue using an arbitration agreement as part of their policies to expediently resolve disputes.

About the Author

Jon A. Dieringer

Jon believes in keeping a strong focus on preventive law; developing policies and practices to avoid costly disputes, and litigating only when required. Since the beginning of his law career in 1992, Jon has successfully litigated cases from intake through appeals, including discovery and deposit.

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