The United States Court of Appeals for the Ninth Circuit recently issued an injunction prohibiting the enforcement of California Assembly Bill 51 (AB 51), which banned mandatory employment arbitration agreements. The Ninth Circuit panel concluded that AB 51 is preempted by the Federal Arbitration Act (FAA). Consequently, employers in California may continue to require employees, as a condition of employment, to sign agreements waiving their right to bring disputes in court and instead submit them to arbitration.

The FAA establishes a strong federal policy favoring arbitration. The Ninth Circuit held that AB 51 conflicts with this policy by “singling out” arbitration agreements in employment contracts for special treatment. Because the FAA covers both commercial and employment arbitration, California’s attempt to provide a “wholesale exemption” for employment disputes was deemed impermissible. Unless and until the United States Supreme Court overrules the Ninth Circuit’s decision, employers in California remain free to implement mandatory arbitration programs as a term and condition of employment.

Here are the rights for most California employers can lawfully require employees to submit to arbitration to resolve:

• Alleged claims of discrimination and unpaid overtime;
• Claims alleging a failure to provide meal or rest periods; or
• Any other claims based on violations of the California Fair Employment and Housing Act (FEHA) or the California Labor Code

Possible impacted employers are employers with one or more employees performing work in California. Effective Date: February 15, 2023.¹