Ninth Circuit Continues to Write the Story of Employment Arbitration Agreements in California

By: Samuel S. Rose

For our readers who are following the ongoing battle over employer arbitration agreements in California, you have probably been following the legal battle over AB 51 (2019), which added section 432.6 to the California Labor Code. When AB 51 was first signed by the governor, we expected that it would be challenged based on preemption by the Federal Arbitration Act. Litigation did ensue and, as we wrote about in this article, the district court issued a preliminary injunction preventing AB 51 from going into effect.

In September of 2021, we wrote that the Ninth Circuit vacated the preliminary injunction in a decision based on extremely creative legal reasoning. The panel ultimately reasoned that regulating pre-agreement employer behavior through section 432.6 did not conflict with the FAA, though imposing civil and criminal sanctions attached to a violation of that section would violate the FAA since it would necessarily involve punishing employers for entering into an agreement to arbitrate. The dissent was extremely critical of the decision, saying it was a “blatant attack on arbitration agreements.”

In October of 2021, the plaintiffs petitioned the Ninth Circuit for rehearing. In February 2022, the Ninth Circuit deferred consideration of the plaintiffs’ petition for rehearing until after the U.S. Supreme Court issued its decision in Viking River. (We wrote about Viking River here).

We have been waiting for the Court to decide on the petition for rehearing. Last week, the Court granted panel rehearing sua sponte and denied Plaintiff’s petition for rehearing as moot. In a somewhat surprising move, the Court also withdrew its prior decision, the effect of which is that the district court’s preliminary injunction is back in place.

What’s Next?

As of now, the preliminary injunction is in effect and AB 51 is not the law in California. We now wait for the Ninth Circuit to issue a new opinion. We will continue to monitor this everchanging landscape and provide another update when the Ninth Circuit issues that new opinion.