Employers with California employees, multi-state arbitration agreements, or remote workers in California may want to reconsider the use of mandatory arbitration agreements after the Ninth Circuit recently published its long-awaited decision in Chamber of Commerce of the U.S.A. et al. v. Bonta et al.
In the ruling, the Ninth Circuit Court of Appeals lifted the injunction that had prevented enforcement of California Labor Code §§ 432.6 and 433 and Government Code § 12953. These provisions ban employers from utilizing mandatory arbitration agreements. Given that the decision is sure to be appealed, the path forward can seem unclear. Below, we provide a brief background of Bonta as well as considerations for employers who currently utilize mandatory arbitration agreements for employees working in California.
This means that if an employer offers an arbitration agreement to a prospective employee as a condition of employment, and the prospective employee executes the agreement, the employer may not be held civilly or criminally liable under Section 433. Liability attaches only if the California-based employee does not execute a mandatory arbitration agreement.
It is widely anticipated that the Chamber of Commerce will appeal the Ninth Circuit’s decision in Bonta to the U.S. Supreme Court or that a majority of the Ninth Circuit will request a rehearing of the panel’s decision en banc. If the case is appealed and accepted by the U.S. Supreme Court, the decision may be reversed on the ground that the law is fully preempted by the FAA. This has been the fate of many similar cases arising under California laws that are hostile to arbitration. The question becomes: what can employers do in the meantime?
Employers should remember that arbitration agreements entered into before January 1, 2020 are not covered by Section 432.6.
For arbitration agreements entered into on or after January 1, 2020, up to the date of the Ninth Circuit’s opinion, September 15, 2021, employers can either continue enforcing the agreements (with the understanding that enforcement of Section 432.6 will likely be enjoined pending appeal) or not enforce the agreements unless and until the law is enjoined pending appeal. Employers should note that a delay in enforcing an arbitration agreement could result in a potential waiver of the ability to compel arbitration at a later time.
Going forward, employers that wish to utilize arbitration agreements have several options:
How employers with California employees choose to respond to the Ninth Circuit’s ruling will depend on several factors, including their organization’s risk tolerance, litigation risk profile, and their workforce.
Lane Powell’s team of attorneys is here to help you develop and implement the strategy that supports your business and your employees. For more information, contact Courtney McFate or Rishi Puri. Keep up-to-date by subscribing to Lane Powell’s Legal Updates.
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