Ninth Circuit Upholds Portions of AB 51 (California Law Prohibiting Use of Mandatory Arbitration Agreements)

September 20, 2021

The Ninth Circuit Court of Appeals cast doubt on employers’ ability to implement mandatory arbitration agreements with their employees in a split 2-1 decision that likely raises more questions than it answers. The Ninth Circuit upheld portions of California Labor Code section 432.6, which prohibits employers from requiring employees to sign arbitration agreements and imposes severe criminal and civil penalties for violations. According to the Ninth Circuit, arbitration agreements signed by parties remain enforceable (even if they violate section 432.6), while parties who refuse to sign an arbitration agreement may still pursue a remedy against the employer under the statute. Additionally, the Court stated that employers may face criminal and civil penalties in such instances. This is, undoubtedly, perplexing. As a result, employers may want to review their practices for implementing employee arbitration agreements, at least until the Ninth Circuit decides whether to en banc hear the case or the United States Supreme Court rules.

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