January 30, 2023

Volume XIII, Number 30


January 27, 2023

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Divided Ninth Circuit Panel Upholds AB 51, but Strikes Down Enforcement Mechanism

On September 15, 2021, a divided Ninth Circuit panel in Chamber of Commerce v. Bonta, Case No. 20-15291, upheld Assembly Bill 51 (“AB 51”), a bill that would prohibit employers from requiring employees to execute arbitration agreements as a condition of their employment.  The Ninth Circuit’s ruling reversed in part the District Court’s ruling that AB 51 is preempted by the Federal Arbitration Act (“FAA”).

The FAA provides that arbitration agreements, like other contracts, “shall be valid, irrevocable, and enforceable,” unless they are the product of fraud or unconscionability, or they are otherwise unenforceable as a matter of generally applicable contract law.  The majority concluded that AB 51 does not conflict with the FAA because it “does not make invalid or unenforceable any agreement to arbitrate, even if such agreement is consummated in violation of the statute.”  Rather, the Court noted, the law’s effects “are aimed entirely at conduct that takes place prior to the existence of any such agreement.”  The Court, however, held that AB 51’s accompanying enforcement mechanism that would impose criminal and civil sanctions on employers for violating AB 51 “directly conflicts with § 2 of the FAA” and is therefore preempted.

Judge Ikuta’s dissent heavily criticized the majority opinion, describing it as a clear “attempt to evade the FAA.”  Judge Ikuta cited to Senate Judicial Committee Report on AB 51, which candidly acknowledges that “AB 51 seeks to sidestep the preemption issue” by “applying only to the condition in which an arbitration agreement is made, as opposed to banning arbitration itself.”  Judge Ikuta also highlighted the perverse effects of the majority holding: “This holding means that an employer’s attempt to enter into an arbitration agreement with employees is unlawful, but a completed attempt is lawful.”

The business groups are expected to challenge the panel’s ruling, including up to the Supreme Court if necessary.  AB 51 likely will not take effect while these legal challenges play out.  In the meantime, employers are strongly encouraged to consult with counsel to evaluate potential changes to their arbitration agreement practices.

Copyright © 2023, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume XI, Number 279

About this Author

Kirk A. Hornbeck Litigation Attorney Hunton Andrew Kurth Los Angeles

Kirk’s practice focuses on class action defense and complex employment litigation.

Kirk has defended clients in dozens of class actions involving consumer and employee claims as well as statewide representative actions brought pursuant to the California Labor Code Private Attorneys General Act of 2004 (“PAGA”). Kirk also has represented clients in a wide range of complex commercial litigation matters, including in the retail and financial services sectors. In addition to his litigation practice, Kirk regularly counsels clients on how to minimize...

Brandon Marvisi Litigation Attorney Hunton Andrews Kurth Los Angeles

Brandon’s practice focuses on class action defense and complex litigation, including wage and hour litigation.

Brandon has experience managing all aspects of the discovery process as well as drafting substantive pleadings and pretrial motions.

Brandon is a contributing author in the firm’s Retail Industry Blog.

Working with the Inner City Law Center, Brandon maintains an active pro bono practice by providing legal representation and advocacy to homeless and low-income populations.