Employers generally consider arbitration to be a more favorable forum for deciding disputes than litigating in court, though the costs to arbitrate are expensive. For one, juries who find against employers tend to be more generous in their awards than arbitrators. Second, arbitration clauses can include class action waivers, making it hard or impossible for employees to bring class action lawsuits. For these reasons, employers have increasingly required employees to sign mandatory arbitration clauses.
The enforceability of such mandatory arbitration clauses, however, has been in a state of flux. In a setback for employers, California Assembly Bill 51, effective January 1, 2020 prohibited California employers from requiring employees to agree to mandatory arbitration as a condition of employment. Good news arrived shortly afterwards when in early 2020, a federal district court barred enforcement of AB 51 as preempted by federal law. It ruled that AB 51 put arbitration agreements on an unequal footing with other contracts, in violation of the Federal Arbitration Act. A further setback came in September 2021, when the Ninth Circuit Court of Appeals reversed this ruling, thus reinstating the prohibition.
The latest development came a few weeks ago, in August 2022, when the Ninth Circuit withdrew its prior opinion from September 2021 and set the matter for rehearing. The effect is that – at least for now – the district court’s preliminary injunction barring enforcement of AB 51 is back in place, and California employers are again free to require employees and applicants to sign arbitration agreements.
Employers should consider seizing the moment and consider mandating arbitration provisions as a condition of employment. Nonetheless, given the legal uncertainties, and given that arbitration has both advantages and disadvantages, we highly recommend consulting with employment law counsel before mandating arbitration provisions as a condition of employment.
Please feel free to contact us if you have questions regarding arbitration provisions or would like assistance drafting and implementing an arbitration program.
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