California's Mandatory Arbitration Ban Revived by 9th Circuit

Author: David B. Weisenfeld

September 22, 2021

California's ban on employers' use of mandatory arbitration agreements has been upheld in large part by the 9th Circuit Court of Appeals. In a 2-1 ruling in Chamber of Commerce v. Bonta, the San Francisco-based appellate court held that a lower court erred in blocking enforcement of the ban. The 9th Circuit found that the Federal Arbitration Act (FAA) did not preempt the California law, AB 51.

The California measure was passed in response to the #MeToo movement's argument that mandatory arbitration clauses effectively silence women who bring workplace sexual harassment claims. AB 51 also aimed to protect workers who were deemed as being compelled to sign away their rights in a variety of industries, including:

  • Food service;
  • Hospitality; and
  • Retail workers.

In addition, the measure prohibits retaliation against any employee who refuses to consent to an arbitration agreement. It also states that compelling an unwilling party to arbitrate is an unfair labor practice.

The Supreme Court has consistently upheld the use of mandatory arbitration clauses in employment under the FAA. But the 9th Circuit panel found that the FAA does not preempt state rules governing the formation of arbitration agreements. However, the appellate court also held that California could not impose civil or criminal penalties because such penalties would violate the FAA.

The Chamber of Commerce is certain to appeal the 9th Circuit's ruling as its chief counsel called the decision "clearly wrong." In dissent, Circuit Judge Sandra Ikuta agreed with the Chamber and viewed the California law as a clear overreach.

"Like a classic clown bop bag, no matter how many times California is smacked down for violating the Federal Arbitration Act, the state bounces back with even more creative methods to sidestep the FAA," said Judge Ikuta. She added that an employee's preference for litigating disputes does not make an arbitration agreement nonconsensual.

Two other federal appellate courts - the 1st Circuit and the 4th Circuit - have reached contrary holdings and struck down other state prohibitions on the use of mandatory arbitration.