Court sides with employers in dispute over California law barring forced arbitration

A California law barring employers from requiring their employees to resolve serious workplace complaints in private runs afoul of federal law, a federal appellate court ruled Wednesday.

The 2 to 1 decision by a three-judge panel of the U.S. 9th Circuit Court of Appeals marked a legal victory for big businesses and employers, and a major blow to workers, labor advocates said.

Under what are known as mandatory arbitration agreements, employees are required to settle discrimination, harassment and other workplace complaints in private, closed-door sessions rather than in public court proceedings. Such agreements have proliferated in recent years and are often forced on workers as a condition of employment.

Proponents of such agreements, including national and state business associations, say they allow for swifter and less costly resolution to routine workplace matters and still provide protection for employees.

Critics contend such agreements intentionally veil abuses — including the sort of workplace sexual harassment that has been targeted by the #Metoo movement — and make it harder for workers to know if their mistreatment is isolated or part of a larger pattern.

California’s law, known as AB51, made it a criminal offense for employers to force employees to sign such arbitration agreements for claims they might make under state labor laws. Labor rights proponents hailed the legislation, and Gov. Gavin Newsom signed it into law in 2019 as part of a package of bills that he said would protect workers from sexual harassment and provide them with wage and health protections.

Similar legislation had been vetoed repeatedly by Gov. Jerry Brown, and business groups — including the U.S. Chamber of Commerce, the California Chamber of Commerce, the National Retail Federation and the California Retailers Association — promptly sued over the new law, alleging it violated their rights to arbitration under federal law.

A federal district court judge agreed with the business groups, issuing a preliminary injunction in 2019 blocking the law from taking effect as their lawsuit moved forward. The state appealed that injunction in the 9th Circuit, and initially won.

However, the same threejudge panel that had ruled the law could take effect later took the case back up, citing an unrelated U.S. Supreme Court arbitration case. The panel Wednesday reversed itself.

Writing for the court, Circuit Judge Sandra

Ikuta, a President George W. Bush appointee, ruled that the state law was preempted by the Federal Arbitration Act, which protects the binding nature of arbitration clauses in the face of challenges.

Ikuta wrote that the federal law’s authority “extends to state rules that discriminate against the formation of arbitration agreements,” which would include California’s law.

Ikuta was joined by Circuit Judge William Fletcher, a President Clinton appointee who had previously ruled for employees in the panel’s first decision in the case. Fletcher did not write in the case or explain his change of mind.

10th Circuit Judge Carlos Lucero, another Clinton appointee who was specially appointed to sit on the 9th Circuit panel, dissented.