A federal appeals court on Wednesday revised a labor-based California law that prohibits employers from requiring employees to arbitrate labor disputes instead of taking them to state regulatory agencies or courts.
The law, AB51, signed by Gov. Gavin Newsom, was scheduled to go into effect in January 2020, but was blocked in most of its applications by U.S. District Judge Kimberly Mueller of Sacramento, who he said he was in conflict with a 95-year-old federalist. law that allows employers to enforce arbitration contracts and prohibits states from interfering with them. Gov. Jerry Brown had cited the same reason for vetoing similar legislation in 2015 and 2018.
But the ninth San Francisco U.S. Circuit Court of Appeals said Wednesday that federal law did not allow employers to require current or future employees to accept arbitration as a condition of maintaining their jobs. In a 2-1 ruling, the court overturned the provisions of AB51 that imposed criminal sanctions on employers for requiring arbitration, but upheld the central feature of the law, the prohibition of compulsory arbitration as a working condition. .
California law is consistent with the premise of the 1926 Federal Arbitration Act: “Arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual,” the majority judge’s opinion said. Denver Federal Court of Appeals Carlos Lucero. temporarily assigned to the Ninth Circuit.
Judge William Fletcher agreed with Lucero’s opinion. Disagreeing, Judge Sandra Ikuta mocked California law as a “legislative ploy” and said it imposed an illegal burden on “employers who offer arbitration agreements as a working condition.”
State law had come into force in 2020 for transportation employees in California, because federal arbitration law does not apply to them. Wednesday’s resolution, if upheld, will apply AB51 to all categories of workers.
Arbitration is widely used by employers and opposes unions for resolving disputes over wages and working conditions. It is faster and less costly than filing complaints with the state Department of Labor or suing in court, but it is also more secretive and arbitrators ’rulings are extremely difficult to overturn on appeal. The procedure also requires arbitrating cases individually, rather than class actions on behalf of many employees.
The U.S. Supreme Court has applied federal arbitration law broadly and has rejected attempts by several other states to limit arbitrage in the workplace. In a 2017 ruling that overturned the proposed restrictions on the Kentucky proceeding, the court said states have no authority to “selectively find arbitration contracts invalid because they have been formed incorrectly.”
But the appeals court said Wednesday that contracts must be voluntary to be valid, so California can allow job seekers and employees to refuse to consent to arbitration without being sanctioned.
“Congress … had no intention of preventing state laws that required arbitration agreements to be voluntary,” Lucero said.
Ikuta disagreed. The Federal Arbitration Act “prevents laws that … burden the formation of arbitration agreements,” even when employees enter it because of unequal bargaining power, he said.
The ruling is a victory for workers, said attorney Cliff Palefsky, who filed arguments for the California Bar Association, which represents employees. State law does not invalidate arbitration agreements, he said, but “if someone says” I don’t want to sign “it can’t be terminated or sanctioned.”
The U.S. Chamber of Commerce, which led business organizations to sue to repeal the law, will appeal the ruling, said Daryl Joseffer, its senior vice president and chief executive officer.
“Research shows that arbitration is more efficient and less costly for everyone,” he said. “Workers and consumers make more money, more often and quickly through arbitration than in litigation. Costly demands can take years to resolve. ”
Bob Egelko is a staff writer for the San Francisco Chronicle. Email: [email protected] Twitter: @BobEgelko