Congress, facing business-community pressure, passed the Federal Arbitration Act (FAA) in 1925. Section 2 of the FAA states that an agreement to resolve disputes via arbitration “shall be valid, irrevocable, and enforceable.” The U.S. Supreme Court has interpreted the FAA expansively, and has applied the FAA to employment contracts, upheld waivers of the right to class actions, and sanctioned arbitration of civil rights disputes.
Some state courts have responded to the Court’s interpretations with outright hostility by undermining the FAA. However, SCOTUS has broadly rejected their attempts at workarounds
In a recent battle in this arena, the California legislature passed AB 51 in 2019 which added Section 432.6 to the Labor Code which prohibits California employers from requiring employees to sign an arbitration agreement regarding FEHA claims as a condition of employment.
Shortly after its passage, the Chamber of Commerce of the United States of America, California Chamber of Commerce and other business groups filed suit in the United States District Court for the Eastern District of California, arguing that A.B. 51 was preempted by the FAA. The district court granted a temporary restraining order against A.B. 51 three days before it was to take effect.
In February 2020, the same court issued a preliminary injunction, finding A.B. 51 was preempted by the FAA. The district court noted the California legislature’s history of circumventing the Supreme Court’s interpretations of the FAA: the Governor has twice vetoed similar bills as preempted, with a third rejected by a California appellate court. A.B. 51 fared no better.
The Ninth Circuit reversed in part. as it held that A.B. 51 was not in conflict with, and therefore not preempted by, the FAA. Relying on FAA text and precedent, the court held that the FAA does not govern behavior in the absence of an executed arbitration agreement; accordingly, the provisions in A.B. 51 regulate employer conduct only before an arbitration agreement exists. Thus it essentially upheld California’s law banning mandatory arbitration agreements in the workplace.
The U.S. Chamber of Commerce filed a petition for rehearing en banc, which the Ninth Circuit deferred pending the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana. The U.S. Supreme Court issued its decision in Viking River Cruises on June 15, 2022. In essence SCOTUS held in an 8-1 ruling that the Federal Arbitration Act allows employers to enforce arbitration agreements as to individual claims asserted under the California Private Attorneys General Act.
Following the closely watched Viking decision, instead of granting or denying the petition, on August 22, 2022 the Ninth Circuit withdrew its prior opinion and granted a panel rehearing in the U.S. Chamber of Commerce v Bonta case . No date has yet been set for this hearing.
The U.S. Supreme Court decision in Viking has now – at least temporarily – disrupted the PAGA process against employer’s who have arbitration agreements in California Hence, on July 22, 2022 the California Supreme Court granted a Petition for Review in the Adolph v Uber Technologies Inc. case. The Uber case was chosen to decide how Viking will be integrated into California employment law with respect to employer mandated arbitration agreements with employees..
And at least some California employment law attorneys are speculating that in the Chamber of Commerce v Bonta case, the Ninth Circuit three-judge panel might conclude the FAA preempts AB 51 in its entirety And a recent article on the case by the Harvard Law Review before the decision was withdrawn said “Bonta is a remarkably prolabor decision, but it is susceptible to reversal by the Supreme Court given its shaky doctrinal grounds.”
Needless to say, the Chamber of Commerce v Bonta, and Adolph v Uber Technologies cases will be closely followed by employers in the months to come.