Chamber of Commerce v. Xavier Becerra (AB 51)
In an important ruling for employers, on February 15, 2023, the Ninth Circuit Court of Appeals in Chamber of Commerce v. Xavier Becerra held that the Federal Arbitration Act (FAA) preempted California’s Assembly Bill 51 (AB 51). This decision affirms the District Court’s preliminary injunction prohibiting California from enforcing AB 51. AB 51 was enacted to protect employees from “forced arbitration” by making it a misdemeanor offense to require an existing employee or an applicant for employment to consent to arbitrate specified claims as a condition of employment.
The Ninth Circuit held that AB 51’s penalty-based scheme to prevent forming arbitration agreements violates the “equal-treatment principle” inherent in the FAA and is the type of device or formula evincing hostility towards arbitration that the FAA was enacted to overcome. The panel found that all provisions of AB 51 work together to burden the formation of arbitration agreements, and rejected California’s argument that the court could sever the provisions that impose criminal and civil penalties and still uphold the balance of AB 51. The panel could not presume that the California legislature would want to maintain a statute without an enforcement mechanism. As a result, California employers can continue to use arbitration agreements with employees in California. We will keep you advised if the state seeks further review.