Arbitration agreements have been trending in the courts this past year, and California employers just received another win. Employers once again have the option of requiring employees and applicants to sign arbitration agreements as a condition of employment.
On February 15, 2023, the Ninth Circuit Court of Appeals issued a decision in Chamber of Commerce of the United States of America v. Bonta, ruling that California’s ban on employer-required arbitration agreements is unlawful and preempted by the Federal Arbitration Act (FAA).
California Assembly Bill 51, the subject of the recent decision, was signed into law on October 10, 2019 and enforceable beginning January 1, 2020.
The bill prohibited employers from requiring applicants and employees to waive their rights to litigation, litigation procedures, and a judicial forum for certain claims. It also prevented employers from threatening, retaliating, or discriminating against applicants or employees because they refuse to waive those rights. Additionally, a violation of these provisions was a misdemeanor offense.
In short, under AB 51, employers could not require their employees to sign arbitration agreements agreeing to arbitrate potential disputes because those agreements waive employees’ rights to litigation in a judicial forum.
Chamber of Commerce of the United States v. Bonta
Just before the new year when AB 51 was to take effect, the U.S. Chamber of Commerce and several other businesses filed a preliminary injunction, arguing AB 51 violated federal law, specifically the FAA. The federal district court hearing the injunction agreed with the U.S. Chamber of Commerce, but the Ninth Circuit Court of Appeals later held in Chamber of Commerce v. Bonta that AB 51 was lawful and did not violate the FAA.
As a result of the appellate decision, employers began making arbitration agreements voluntary. Despite the shift to voluntary agreements, there was soon an influx of new employee complaints and legal arguments alleging that the agreements were only guised as voluntary and were still in fact a mandatory condition of employment.
On the heels of the mounting complaints, the Supreme Court issued its monumental holding in Viking River Cruises.
Shortly after last year’s Viking River Cruises decision, and almost a year after the Court of Appeals issued its initial ruling in Chamber of Commerce v. Bonta, the Ninth Circuit took the extraordinary step of deciding to rehear the matter. With the same judges that had reviewed the issue when it first arose, the Court ultimately overturned its initial decision and decided that the bill did in fact violate federal law under the FAA and preempted AB 51 “as a whole to the extent it applies to arbitration agreements.”
Impact on Employers
Employers may be feeling a sense of whiplash from these recent back-and-forth decisions, and although the issue could still be appealed to the United States Supreme Court, the recent decision in Chamber of Commerce v. Bonta is a good indication that employers can once again require employees to sign arbitration agreements as condition of employment (at least for the foreseeable future).
While the new Chamber of Commerce v. Bonta decision is a huge win for employers, there are still various concerns that employers should be aware of when deciding whether to implement arbitration agreements.
First of all, the FAA does not apply to all employees. Therefore, arbitration agreements involving certain classes of workers employed in foreign or interstate commerce, such as railroads, airlines, and telecommunications carriers still may not be required to sign arbitration agreements.
Second, arbitration agreements must be procedurally and substantively fair to the employee. Courts will consider whether there is oppression or surprise due to unequal bargaining power and whether the agreement will have overly harsh or one-sided results.
Also, employers should be mindful to provide the agreement in the employee’s native language.
Lastly, employers should be aware that arbitration is expensive, and generally it is the employer’s duty to pay the arbitrator’s fees in order for the parties to attend arbitration. These costs are significant, and an arbitrator’s deposit or fee alone, could cost more than the value of the case, sometimes upwards of $10,000 for a single day. With an arbitration agreement in place, an employer may later find themselves obliged to pay for the arbitration of an employee’s claim. It is recommended that employers consult legal counsel to determine if mandatory arbitration agreements are suitable for their business needs.
The attorneys at Duggan McHugh are available to provide guidance to employers in determining whether mandatory arbitration agreements are appropriate for their business, ensuring that their arbitration agreements are updated to include recent court decisions, and are enforceable.