Can Employers in California Condition Arbitration Agreements on the Employment?

California is well known as a pro-employee state.  Its fervent efforts to protect employees reached the Federal Ninth Circuit in the battle over the arbitration agreements.

The California Assembly Bill 51 (signed in October 10, 2019), which added Section 432.6 to the California Labor Code, prohibits employers from requiring employees and applicants to waive any right, forum, or procedure, including the right to file a civil action or complaint, as a condition of employment or continued employment.  The district court enjoined the enforcement of the Bill saying that it is inconsistent with the purpose and objectives of the Federal Arbitration Act ("FAA"). 

However, on September 15, 2021, the Ninth Circuit partially reversed the district court's injunction in Chamber of Commerce of the United States v. Bonta (9th Cir. Sep. 15, 2021) and held that the Bill was not fully preempted by FAA.  In other words, the Bill is enforceable in the part stating that employers cannot set arbitration agreements (or other waivers of rights) "as a condition of employment" or otherwise threaten, retaliate, discriminate, or terminate employment for not signing the agreement.  The key phrase is "as a condition."  According to Section 432.6, employers cannot put pressure on employees or applicants to sign the agreement - or lose the job.   The agreement must be consensual. 

How can employers make sure that the arbitration agreements are consensual?  Or that they do not threaten, retaliate, discriminate, or terminate employment for employees' refusal to sign arbitration clauses?  Employers must review their policies and practices to ensure compliance with the legal requirements. 

February 15, 2023 update: the Ninth Circuit ruled that the Federal Arbitration Act preempts AB51.

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