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Back in 2019, Governor Gavin Newsom signed Assembly Bill 51 (Cal. Lab. Code §§ 432.6(a)–(c), 433; Cal. Gov’t Code § 12953), which effectively outlawed mandatory arbitration agreements with employees – a new version of a bill that prior Governor Jerry Brown had vetoed repeatedly while he was in office.

The law allows workers to pursue damages and attorneys’ fees and open criminal cases against employers who discriminate and retaliate against them for declining arbitration contracts.

The contentious bill bars employers from requiring applicants to waive their right to sue under state labor laws as a condition of employment. Going a step further, the bill sponsored by the California Labor Federation and Consumer Attorneys of California opened employers up to civil and criminal penalties for extreme violations.

A federal judge enjoined the state from enforcing Assembly Bill 51 last year, agreeing with the Chamber of Commerce and other employers that it was pre-empted by the Federal Arbitration Act. The decision was hailed by the coalition of business groups who accused California lawmakers of trying to weaken the common tool used to keep employment disputes out of the courts.

In the case of Chamber of Commerce v Rob Bonta, the Attorney General of the State of California, the Ninth Circuit panel ruled in a 2-1 decision, that the state can require all employment arbitration agreements be consensual and reversed the preliminary injunction. It found AB 51 doesn’t discriminate against arbitration agreements or nix their enforcement.

“In light of Congress’ clear purpose to ensure the validity and enforcement of consensual arbitration agreements according to their terms, it is difficult to see how [AB 51], which in no way affects the validity and enforceability of such agreements, could stand as an obstacle to the FAA,” U.S. Circuit Judge Carlos Lucero, a Bill Clinton appointee sitting by designation from the 10th Circuit, wrote for the majority.

U.S. Circuit Judge Sandra Segal Ikuta, a George W. Bush appointee, wrote a dissenting opinion. She commenced her dissent by claiming “Like a classic clown bop bag, no matter how many times California is smacked down for violating the Federal Arbitration Act (FAA), the state bounces back with even more creative methods to sidestep the FAA”.

“And today the majority abets California’s attempt to evade the FAA and the Supreme Court’s caselaw by upholding this anti-arbitration law on the pretext that it bars only nonconsensual agreements. The majority’s ruling conflicts with the Supreme Court’s clear guidance in Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S. Ct. 1421, 1428–29 (2017), and creates a circuit split with the First and Fourth Circuits. Because AB 51 is a blatant attack on arbitration agreements, contrary to both the FAA and longstanding Supreme Court precedent, I dissent. “

According to a report in Courthouse News, the Chamber of Commerce signaled it could appeal.

“The majority decision is clearly wrong, violates U.S. Supreme Court precedent and runs contrary to decisions of many other courts,” said Daryl Joseffer, chief counsel for the chamber, in an email. “The U.S. Chamber will pursue further review of this flawed decision.”