Ninth Circuit Rules Federal Arbitration Act Preempts AB51, Paving Way for Mandatory Arbitration Agreements

February 17, 2023 Advisory

California disfavors arbitrations in the employment setting and, in 2019, the California Legislature passed AB51 prohibiting companies to require employees to sign arbitration agreements for employment-related disputes as a condition of employment. Contrary to California, the Federal Arbitration Act’s (FAA) purpose is to encourage arbitration. When AB51 took effect in California in January 2020, the U.S. Chamber of Commerce asked the federal district court for a preliminary injunction to stop AB51’s application to arbitration agreements governed by the FAA. The district court granted the injunction, ruling that the FAA preempted AB51. On appeal in 2021, the Ninth Circuit, in a divided panel of three, held that the FAA did not completely preempt AB51 where AB51 regulates an employer’s arbitration policy prior to executing an arbitration agreement. The U.S. Chamber of Commerce requested a rehearing, en banc. Instead of ruling on the en banc petition, the Ninth Circuit withdrew its prior opinion and granted a panel rehearing.

Good news for California employers. On Feb. 15, 2023, the Ninth Circuit panel ruled the FAA preempts AB51, citing the purpose of the FAA to encourage arbitration and holding that AB51 is an impediment to that purpose. It is unclear whether the California Attorney General’s Office will ask the Ninth Circuit for rehearing, en banc, or petition the U.S. Supreme Court for review. However, it appears promising that companies will be able to condition employment, including continued employment, on employees agreeing to mandatory arbitration.

Employers must still be mindful of limitations to arbitration agreements, such as the prohibition against compelling arbitration of sexual assault/harassment claims. Moreover, uncertainty remains regarding provisions requiring arbitration of all individual claims, including under California’s Private Attorney General Act (PAGA) for violations of the California Labor Code, and the effect of the individual’s standing to maintain a representative PAGA claim in light of the U.S. Supreme Court’s decision in Viking River Cruises.

If you are considering instituting an arbitration policy for your workforce or have not updated your arbitration policy recently, there are a number of considerations of which to be mindful in California. Please contact your regular AT lawyer or the author below for additional information specific to your company.

Contact Us
  • Worldwide
  • Boston, MA
  • Chicago, IL
  • Denver, CO
  • Dublin, Ireland
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • London, England
  • Miami, FL
  • New York, NY
  • Orange County, CA
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
  • Washington, D.C.
  • Wilmington, DE
abstract image of world map
Boston, MA
800 Boylston St.
30th Floor
Boston, MA 02199
Google Maps
Boston, Massachusetts
Chicago, IL
100 North Riverside Plaza
Suite 1500
Chicago, IL 60606-1520
Google Maps
Chicago, Illinois
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Dublin, Ireland
Fitzwilliam Hall, Fitzwilliam Place
Dublin 2, Ireland
Google Maps
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
101 E. High St.
First Floor
Jefferson City, MO 65101
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
7160 Rafael Rivera Way
Suite 320
Las Vegas, NV 89113
Google Maps
Las Vegas, Nevada
London, England
Royal College of Surgeons of England
38-43 Lincoln’s Inn Fields
London, WC2A 3PE
Google Maps
Miami, FL
355 Alhambra Circle
Suite 1200
Coral Gables, FL 33134
Google Maps
Photo of Miami, Florida
New York, NY
7 Times Square, 44th Floor
New York, NY 10036
Google Maps
New York City skyline
Orange County, CA
19800 MacArthur Boulevard
Suite 300
Irvine, CA 92612
Google Maps
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
222 South Main St.
Suite 1830
Salt Lake City, UT 84101
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri
Washington, D.C.
1717 Pennsylvania Avenue NW
Suite 400
Washington, DC 20006
Google Maps
Photo of Washington, D.C. with the Capitol in the foreground and Washington Monument in the background.
Wilmington, DE
1007 North Market Street
Wilmington, DE 19801
Google Maps
Wilmington, Delaware