Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 195 Alberto is significant because it is very common for employers to have new employees execute multiple agreements upon hire. Alberto serves as a cautionary tale for employers, as they must ensure that all such agreements are enforceable, lest a court conclude that none of them are. I. The Ninth Circuit Invalidates California’s Legislative Attacks on Employee Arbitration Agreements On October 10, 2019, Governor Newsom signed AB 51, which adds Section 432.6 to the Labor Code and Section 12953 to the Government Code. The new law, manifesting California’s continuing aversion to arbitration provisions, forbids employers to require prospective or current employees to “waive any right, forum, or procedure for a violation of any provision” of the FEHA or the California Labor Code. The law prohibits employers from requiring employees to enter arbitration agreements as a condition of employment, continued employment, or the receipt of any employment-related benefit. To pass muster under the law, arbitration agreements with employees must be entirely voluntary. The bill that became this new law is similar to a bill Governor Brown vetoed in 2018 on the basis that it was preempted by the Federal Arbitration Act. And on February 7, 2020, Chief Judge Kimberly Mueller of the United States District Court for the Eastern District of California confirmed Governor Brown’s concern. Judge Mueller enjoined the State of California from enforcing the new law, because it both interferes with the FAA’s goal of promoting arbitration, and places arbitration agreements on unequal footing with other contracts.950 The State appealed the ruling to the Ninth Circuit and, in September 2021, the Ninth Circuit issued its opinion in a 2-1 decision, which vacated the injunction preventing the State enforcing the law but finding that the civil and criminal penalties were incompatible the FAA.951 The majority found that the law does not conflict with FAA because it focuses on conduct which takes place prior to the formation of the arbitration agreement and does not invalidate the arbitration agreement itself. Regarding the criminal and civil penalties, the panel held they violated the FAA if applied to executed arbitration agreements—because this did not address pre-agreement behavior— but the penalties would be appropriate in situations where an employee refused to sign the agreement. The plaintiff sought an en banc hearing, and on August 22, 2022, a majority of the panel voted sua sponte to grant panel rehearing and withdrew the prior September 2021 opinion.952 On February 15, 2023, the en banc panel decided Chamber of Commerce of the United States of America v. Bonta.953 There, the panel held that the FAA preempts AB 51, including its provision for criminal penalties.954 In reaching its decision, the panel concluded that AB 51’s penalty-based scheme to inhibit arbitration agreements before they are formed violates the “equal-treatment principle” inherent in the FAA, and is the type of device 950 Chamber of Commerce of United States v. Becerra, 438 F.Supp.3d 1078 (E.D. Cal. 2020). 951 Chamber of Com. of United States v. Bonta, 13 F.4th 766 (9th Cir. 2021) 952 Chamber of Com. of United States v. Bonta, 45 F.4th 1113 (9th Cir. 2022). 953 62 F.4th 473 (9th Cir. 2023). 954 The sole dissenting judge (sitting by designation from the Tenth Circuit ), argued that the majority nullified a California law codifying what the enactors of the FAA and the U.S. Supreme Court took as a given: arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual. In support of this position, the judge distinguished AB 51 from state rules previously preempted by the FAA.
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