Attorneys for the state of California have not yet decided their next steps to respond to a federal appeals court's decision to keep in place an order blocking enforcement of a California law that could result in criminal charges against employers who require workers to consent to arbitration to resolve employment disputes.
The opinion by the U.S. Ninth Circuit Court of Appeals on Feb. 15 was a victory for the U.S. Chamber of Commerce and other business groups, which won a preliminary injunction against Assembly Bill 51 in a lower court.
The passage of AB 51 by the California Legislature was an attempt to navigate around a U.S. Supreme Court precedent that said the Federal Arbitration Action (FAA) prevents state rules from discriminating against the use of arbitration, according to a court staff’s summary of the Ninth District opinion. The state law, however, does allow the enforceability of an arbitration agreement between an employer and employee – in a bid to avoid preemption by the federal law.
“This resulted in the oddity that an employer subject to criminal prosecution for requiring an employee to enter into an arbitration agreement could nevertheless enforce that agreement once it was executed,” the summary states.
The court found that the state law’s “penalty scheme” inhibits arbitration agreements before they are even formalized, violating the “equal-treatment principle” found in the federal law.
“Because the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 was therefore preempted,” the summary says.
The California Department of Justice said its attorneys are reviewing the opinion and looking at their next steps.
“More broadly, at the California Department of Justice, we'll continue working to defend laws that are designed to protect workers and ensure fair labor and business practices,” a statement emailed to the Northern California Record said.
The appeals court also held that a previous U.S. District Court for the Eastern District of California decision was correct when it granted the Chamber’s motion for a preliminary injunction.
Editor's note: The Southern California Record is owned by the U.S. Chamber of Commerce.