AB 51 | Arbitration Policies for California Employers

March 22, 2023

The roller coaster litigation involving AB 51 appears to finally be at an end. AB 51, which was initially set to take effect on January 1, 2020 banned mandatory arbitration agreements as condition of employment in California. The law was temporarily blocked before it ever took effect due to litigation initiated by various business groups.

What is happening with AB 51?

In September 2021, the 9th Circuit initially upheld parts of the law. However, in a surprising twist, the 9th Circuit then withdrew its original opinion and reheard the case last year. On February 15, 2023, the 9th Circuit issued its opinion holding that AB 51 is preempted by the Federal Arbitration Act and the bill is therefore invalid.

Bear in mind this litigation involved a review of a preliminary injunction issued by the trial court. The case will now resume with the district court for further trial proceedings. With the injunction in place, the law is unenforceable until the district court determines otherwise, either by dissolving the injunction or making a different ruling after hearing a dispositive motion or trial. However, the writing is on the wall that AB 51 is highly unlikely to survive the litigation. The State must now decide whether it will abandon its efforts to implement AB 51. Given the overwhelming disapproval of the law provided by the 9th Circuit, it seems unlikely the State will continue to push AB 51 in its current condition. If California wishes to limit arbitration in the employment context, it will likely need to go back to the drawing board.

What should Employers do about Arbitration policies?

For employers, this means that it is generally safe to mandate that employees sign arbitration agreements as a condition of employment in California. There are always other potential nuances or factors that could impact the lawfulness of “forced arbitration” in California, so it is still prudent to consult with a California employment attorney to go over your options for instituting an arbitration policy for your employees. In addition, for employers with existing arbitration agreements, it may be time to have them reviewed to ensure they are up to date.  

By: Nathan Klein, Partner

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