U.S. Chamber of Commerce Asks Ninth Circuit to Reconsider Ruling Upholding California’s Mandatory Employment Arbitration Ban

The battle concerning California’s Assembly Bill (AB) No. 51—the law seeking effectively to ban mandatory employment arbitration in California—continues to rage.

On October 20, 2021, the U.S. Chamber of Commerce, the lead plaintiff challenging AB 51, filed a petition for rehearing en banc with the U.S. Court of Appeals for the Ninth Circuit, seeking to reverse the Ninth Circuit’s decision in Chamber of Commerce of the United States of America v. Bonta, No. 20-15291 (September 16, 2021), partially upholding AB 51.

The Chamber’s most recent filing asks the full Ninth Circuit to reconsider the 2–1 decision of a three-judge panel holding that California law may prohibit employers from seeking, on a mandatory basis, arbitration agreements with their employees, but only if an arbitration agreement is not consummated. The panel’s decision holds that courts, pursuant to the Federal Arbitration Act (FAA), must still enforce signed arbitration agreements; however, an employer still violates the California Labor Code if it conditions employment upon the execution of an arbitration agreement. Moreover, an employer can be held liable for a violation of law if an employee refuses to sign an arbitration agreement. The court’s decision, if allowed to stand, could chill any attempt by employers to use mandatory arbitration agreements with their employees.

The petition for rehearing rests significantly upon Judge Sandra Ikuta’s fierce dissent in the underlying panel decision. The petition urges the full court to rehear and reconsider the case on the ground that the panel decision—which the Chamber contends relies upon a faulty distinction between formation and enforcement of an arbitration agreement—violates the authority of the Supreme Court of the United States and creates a split between the Ninth Circuit, on one hand, and the First Circuit and Fourth Circuits on the other. The petition argues that the FAA preempts state laws that interfere with the enforcement or formation of arbitration agreements, and it rejects the panel’s assertion that the FAA does not impact state laws governing the formation of arbitration agreements.

On October 21, 2021, the panel requested that the defendants file a response to the petition. Once the response has been filed, the court will decide whether to rehear the case en banc. In the meantime, the trial court’s decision enjoining enforcement of the law remains in effect; however, the Ninth Circuit’s panel decision remains on the books. The court’s decision on rehearing could take weeks or months.