Divided 9th Circuit upholds California restrictions on mandatory arbitration agreements

On September 15, 2021, a divided panel of the U.S. 9th Circuit Court of Appeals (whose rulings apply to all California employers) ruled a California employer that attempts to impose mandatory arbitration agreements on applicants or employees can be subject to both criminal and civil penalties. In doing so, it struck down an injunction that prohibited California officials from enforcing Assembly Bill (AB) 51. According to the court, it's unlawful for an employer to require applicants or employees to enter into agreements to arbitrate claims alleging violations of the state's Fair Employment and Housing Act (FEHA) and the California Labor Code.

AB 51's history

California Governor Gavin Newsom signed AB 51 into law on October 10, 2019. The bill subjects employers to criminal misdemeanor charges, along with civil sanctions, for requiring employment contracts to contain arbitration agreements relating to certain claims. Under AB 51, which amended the Labor Code to add Section 432.6, employees and job applicants can't be contractually barred from filing state court claims against employers for alleged violations of the FEHA or provisions of the Labor Code.

AB 51 states employers that require arbitration agreements as a condition of employment could face up to six months in jail and face numerous state investigations and private litigation. AB 51 focuses exclusively on prearbitration agreement conduct. That means it doesn't prohibit the enforcement of arbitration agreements.

Court bars enforcement of AB 51