A three-judge 9th Circuit Court of Appeals panel partially reversed a ruling by U.S. District Judge Kimberly Mueller that awarded a preliminary injunction to business groups challenging a law known as AB 51.
“If you have an arbitration agreement, then the statute doesn't do anything to invalidate the enforceability of that arbitration agreement,” said attorney David Reis, chair of the labor and employment practice group at Arnold & Porter law firm in San Francisco. “It just makes it harder to require employees to enter into those because it creates potential liability for employers.”
AB 51 prohibits employers from discriminating or retaliating against workers for refusing to sign an arbitration agreement to mediate Fair Employment Housing Act claims.
“Now businesses can be held accountable if they retaliate or terminate somebody who doesn't sign an agreement,” Reis told the Southern California Record. “The Chamber of Commerce will appeal this because it has a chilling effect on employers trying to enter into arbitration agreements.”
Mueller’s preliminary injunction would have stopped the state of California from enforcing a law prohibiting businesses from requiring employees to arbitrate their claims, according to media reports.
“The Democratic legislature in California has been very anti-arbitration agreements,” Reis said. “There has been a series of laws by the California legislature or decisions by the California Supreme Court that have been overturned by the U.S. Supreme Court with respect to arbitration agreements and the California legislature has long been hostile to the Federal Arbitration Act and U.S. Supreme Court case law upholding arbitration agreements.”
The 9th Circuit upheld the ruling that the clause allowing for employers to be penalized criminally is invalid.
“A violation of this statute could have resulted in a misdemeanor and so if businesses went ahead and required their employers to arbitrate, that would have been considered a misdemeanor but the criminal penalty section of AB 51 is pre-empted,” Reis said.
(Editor's note: The U.S. Chamber Institute for Legal Reform owns the Southern California Record).