On September 15, 2021, a divided panel of the Ninth Circuit Court of Appeals decided the case of Chamber of Commerce v. Bonta. This breathed new life into AB 51, the 2020 state law prohibiting mandatory arbitration agreements in the workplace.

That law prohibits employers from requiring employees to arbitrate claims brought under the state labor code and the Fair Employment and Housing Act, as a condition of employment or continued employment.

It further makes unlawful employer actions which “threaten, retaliate or discriminate against, or terminate any applicant for employment or any employee because of the refusal to consent to the waiver of any right [or] forum…including the right to file and pursue a civil action or complaint with…any state agency…or any court.”

Before AB 51 took effect, the U.S. Chamber of Commerce sued to prohibit enforcement of  the new law, arguing that it was preempted by the Federal Arbitration Act (“FAA”).  In January, 2020, a federal District Court granted the chamber’s petition for an injunction, which prevented its enforcement.

Last month on September 15, the Ninth Circuit partially reversed the District Court’s decision, holding that most of AB 51 is not preempted, because the law focuses only on “pre-agreement employer behavior,” i.e., the manner in which arbitration agreements are entered into, as opposed to arbitration agreements themselves.

Worthy of note is the fact that the Court concluded that AB 51 does not invalidate or render unenforceable arbitration agreements themselves, but instead subjects employers who violate the statute to civil and criminal penalties.

The Ninth Circuit explained that Labor Code section 432.6 (formerly AB 51) has the effect of affirming the long-established principle that arbitration is a matter of contract, and as such, must always be voluntary and consensual.

This decision is virtually certain to be the subject of a petition for rehearing before the Ninth Circuit, and if necessary, appeal to the U.S. Supreme Court.  Significantly, the Bonta decision does not apply retroactively, and does not immediately lift the district court’s preliminary injunction on AB 51.

As long-time readers are aware, the author is a strong proponent of arbitration policies in the workplace, and has referred to them as a “great equalizer” for employers.  This is because, in summary, employers without a legally-enforceable arbitration policy are required to defend employment cases before a jury comprised overwhelmingly, if not exclusively, of employees, not business owners or even management-level employees.

Employers lose the vast majority of these cases, for the reason that the employees serving as jurors tend to sympathize more with the plaintiff-employee, than a (typically) corporate employer.  Of equal or more concern is the fact that defending an employment dispute through a jury trial can readily consume $1 million in defense costs alone.

This means many small employers cannot afford to defend even weak claims, and are thus ultimately forced to settle such cases on terms dictated by plaintiffs and their lawyers.  Arbitration, by contrast, can be successfully completed for as little as one tenth the cost.

Given the enormous stakes involved, employers intent on enforcing arbitration polices in the workplace should consider immediately revising arbitration and other policies to ensure that they comply with the new requirements specified in the Bonta case.  These revisions, as well as statements made to employees in the presentation of these policies, must be carefully coordinated with labor counsel.

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Jay G. Putnam is a labor lawyer who has specialized in representing Northern California employers for four decades. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives.

While no one can guarantee a future free of lawsuits, Putnam has compiled a remarkable record of success: Not one employer-client has been sued in four decades with his system of precautions in place. 

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well.

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. http://www.jaygputnam.com/newsletter/

This newsletter is not intended as a substitute for legal advice and its content is provided for discussion purposes only.  Any suggestions or recommendations must be assessed by competent legal counsel to be sure the unique requirements of each workplace are properly considered.