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A federal appeals court on Wednesday revived a worker-backed California law that prohibits employers from requiring employees to arbitrate workplace disputes instead of bringing them to state regulators or the courts.
The law, AB51, signed by Gov. Gavin Newsom, was due to come into effect in January 2020 but was blocked in most of its requests by U.S. District Judge Kimberly Mueller of Sacramento, who said it was in conflict with a 95-year-old federal. law allowing employers to enforce arbitration contracts and prohibiting states from interfering with them. Governor Jerry Brown used the same rationale for vetoing similar legislation in 2015 and 2018.
But the Ninth U.S. Court of Appeals in San Francisco said Wednesday that federal law does not allow employers to require current or potential employees to accept arbitration as a condition of keeping their jobs. In a 2-1 decision, the court struck down provisions in AB51 that imposed criminal penalties on employers for requesting arbitration, but upheld the central element of the law, the prohibition of compulsory arbitration as condition of employment.
California law conforms to the premise of the Federal Arbitration Act of 1926 “that arbitration is a matter of contract and arbitration agreements must be voluntary and consensual,” said the majority opinion of Carlos Lucero, a judge of the Denver Federal Court of Appeal. temporarily assigned to the Ninth Circuit.
Judge William Fletcher joined Lucero’s opinion. Dissenting, Justice Sandra Ikuta called the California law a “legislative gimmick” and said it imposed an illegal burden on “employers offering arbitration agreements as a condition of employment.”
State law came into effect in 2020 for transportation workers in California because the Federal Arbitration Act does not apply to them. Wednesday’s decision, if upheld, will apply AB51 to all categories of workers.
Arbitration is widely used by employers, and contested by unions, to resolve disputes over wages and working conditions. It’s faster and cheaper than filing a complaint with the state Department of Labor or suing, but it’s also more secret, and arbitrators’ decisions are extremely difficult to overturn on appeal. The procedure also requires that cases be adjudicated individually, as opposed to class actions on behalf of many employees.
The United States Supreme Court has broadly enforced federal arbitration law and has rejected attempts by several other states to limit workplace arbitration. In a 2017 ruling overturning Kentucky’s proposed restrictions on procedure, the court said states did not have the power to “selectively declare arbitration contracts invalid because they are ill-formed.”
But the appeals court said on Wednesday that contracts must be voluntary to be valid, so California can allow job seekers and employees to refuse to consent to arbitration without being penalized.
“Congress… did not intend to prejudge state laws requiring arbitration agreements to be voluntary,” Lucero said.
Ikuta disagreed. Federal arbitration law “prevails over laws that … hinder the formation of arbitration agreements”, even when employees enter into it because of unequal bargaining power, she said. .
The decision is a victory for workers, said attorney Cliff Palefsky, who has filed arguments for the California Employment Lawyers Association, which represents employees. State law does not invalidate arbitration agreements, he said, but “if someone says, ‘I don’t want to sign,’ he cannot be terminated or sanctioned.”
The United States Chamber of Commerce, which led trade organizations to file a lawsuit to overturn the law, will appeal the ruling, said Daryl Joseffer, its senior vice president and chief counsel.
“Research shows that arbitration is more efficient and less expensive for everyone,” he said. “Workers and consumers make more money, more often and faster, through arbitration than through litigation. Costly lawsuits can take years to resolve.
Bob Egelko is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @BobEgelko
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