Labor Code section 432.6 makes it illegal for an employer to require, as a condition of employment, that an employee agree to arbitrate certain employment law claims.
An agreement to arbitrate is a contract. Normally, courts do not enforce contracts that are illegal to form. However, section 432.6 contains the following provision: “Nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act (9 U.S.C. § 1 et. seq.) [FAA]).” (§ 432.6, subd. (f).) Thus, for arbitration agreements enforceable under the FAA, section 432.6 creates an unusual rule. An employer may enforce an arbitration agreement that was illegal to form.
As we discuss below, the Legislature included this odd feature of section 432.6 for a specific reason. The Legislature hoped that doing so would keep federal courts from ruling that section 432.6 is preempted by federal law. That did not happen. In cases where the FAA applies, the United States Court of Appeals for the Ninth Circuit has held that section 432.6 is preempted by the FAA. (Chamber of Commerce of the United States v. Bonta (9th Cir. 2023) 62 F.4th 473, 478 (Bonta).)
How do these features of section 432.6 work when the FAA is not at issue and federal preemption does not apply? In this case, an employer, Triumph Residential Services, Inc., seeks to enforce an arbitration agreement. A former employee, Tiffany Diane Molina, argues that the arbitration agreement was required as a condition of employment in violation of section 432.6. All parties agree that the FAA does not apply to the arbitration agreement and that there is no federal preemption. In this context, can the arbitration agreement be enforced by Triumph, even if it was illegally formed under section 432.6?
We conclude that the answer is no. We reject Triumph’s arguments to the contrary. In our view, section 432.6 was intended to allow only arbitration agreements “enforceable under the [FAA]” to be enforced despite being formed illegally. Since the arbitration agreement in this case is concededly not “enforceable under the [FAA],” it may not be enforced if it violates section 432.6.
We further conclude that the trial court had enough evidence before it to conclude that the arbitration agreement here violated section 432.6. Since the agreement violated section 432.6 and since the FAA does not apply, Triumph may not enforce it.
We therefore affirm the trial court’s order denying Triumph’s motion to compel arbitration.
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