Updates on AB 51 and Its Effect on Arbitration Agreements in Employment Contracts

By Adam Nathaniel Arce

Background: AB 51

In 2019, Governor Newsom signed into law California Assembly Bill 51 (“AB 51”). AB 51 has the following effects:

  • Prohibits employers from requiring employees to sign arbitration agreements as a condition of employment, requiring instead that the arbitration agreement be entered into consensually by the parties.
  • Prohibits retaliation or discrimination against an employee for refusing to sign an arbitration agreement.
  • Created civil and criminal penalties for violation of AB 51.

AB 51 was enacted with an effective date of January 1, 2020. However, the Chamber of Commerce for the United States, among other parties, successfully obtained an injunction against AB 51, preventing the law from going into effect. This injunction was appealed.

9th Circuit Court of Appeals Decision: Chamber of Commerce v. Bonta

On September 15, 2021, the 9th Circuit Court of Appeals issued its ruling on the injunction and the applicability of AB 51, holding the following:

Arbitration Agreements:  AB 51 could prohibit mandatory arbitration agreements without being preempted by the Federal Arbitration Act. The Court held that this prohibition amounted to a “pre-agreement condition” that did not undermine the validity or enforcement of arbitration agreements.

Retaliation/Discrimination: AB 51 could prohibit discrimination and/or retaliation against an employee for refusing to sign an arbitration agreement.

Civil and Criminal Penalties: AB 51 could not create criminal and civil penalties against employers. The Court held that these penalties stood as barriers to the enforcement of arbitration agreements and therefore were preempted by the Federal Arbitration Act.

The Court’s decision eliminates the civil and criminal penalties but leaves the other provisions of AB 51 in effect. The decision also vacated the injunction and sent the case back to the lower courts for further proceedings.

What This Means for Employers

Currently, the preliminary injunction has been lifted, meaning that the provisions of AB 51 that were not specifically preempted are good law. The portions of AB 51 requiring employees and employers mutually agree to enter into an arbitration agreement are still valid, as are the prohibitions against discriminating or retaliating against an employee or prospective employee for refusing to into an arbitration agreement. AB 51 additionally grants an employee the right to file a civil action for employer actions that violate AB 51.

However, there are no civil or criminal penalties imposed on an employer under AB 51, as these penalties are preempted by the FAA. AB 51 also does not apply to preexisting agreements, only to prospective agreements.

Ferber Law is monitoring the new developments relating to AB 51. If you need assistance navigating arbitration agreements under AB 51, please contact Ferber Law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.