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The new year brought some good news for California employers. On January 1, 2024, U.S. District Court Judge Kimberly Mueller issued a decision permanently enjoining California state officials from enforcing AB 51, the contested law that sought to prohibit employers from “forcing” job applicants or employees to enter into pre-dispute employment arbitration agreements covering certain discrimination and retaliation claims. The permanent injunction reaffirmed the ability of employers to mandate arbitration for most employment disputes.

This decision comes less than a year after the Ninth Circuit found that the Federal Arbitration Act (FAA) preempts AB 51 in Chamber of Commerce of the United States v. Bonta. As noted in our blog post on the Bonta decision, the Ninth Circuit ultimately upheld a temporary injunction against AB 51, allowing California employers to continue to use employment arbitration agreements while the matter was litigated, and which—given Judge Mueller’s permanent injunction—now can continue indefinitely.

The Lead Up: Recap of the AB 51 Litigation Battle

Here is a quick summary of the AB 51 litigation leading up to the January 1, 2024 permanent injunction:

  • In December 2019, Judge Mueller issued a temporary restraining order, prohibiting California from enforcing AB 51.
  • In September 2021, the Ninth Circuit struck down Judge Mueller’s decision to temporarily restrain California from enforcing AB 51, holding that AB 51 was not largely preempted by the FAA.
  • In August 2022, the Ninth Circuit withdrew its September 2021 decision and voted to take another look at the case through a panel rehearing.
  • In February 2023, the Ninth Circuit, backtracking on their September 2021 decision, held that AB 51 is preempted by the FAA because the deterring penalties that AB 51 imposes on employers is antithetical to the FAA’s policy of favoring arbitration agreements.

The Outcome: California Is Permanently Barred from Enforcing AB 51

The over four-year long litigation battle over AB 51 culminated in the US Chamber of Commerce and the State of California stipulating to, and Judge Mueller issuing, a permanent injunction enjoining California state officials from enforcing AB 51—and an award of $822,496 in attorneys’ fees and costs to the US Chamber of Commerce.

The Aftermath: Pre-Dispute Employment Arbitration Agreements Are Still Highly Valuable

Employers can and should continue to require arbitration agreements as a condition of employment in California to avoid hefty litigation bills, the risk of runaway jury verdicts, class actions, and the outsized settlement leverage plaintiffs’ attorneys extract from the threat of jury trials. The permanent enjoining of AB 51 also should stave off attempts to revive similar roadblocks to arbitration for the time being. Employers should use this opportunity to review and update their arbitration agreements to ensure they meet the latest requirements imposed by case law.  We provide some suggestions in that regard below.

Tips for Maintaining Enforceable Arbitration Agreements

After employers implement well-drafted arbitration agreements the job is not done. Employers must closely monitor the evolving legal landscape for arbitration, especially case law defining the parameters of enforceable agreements, to ensure their arbitration agreements remain compliant with legal developments. For example, given recent California court decisions rejecting arbitration agreements on unconscionability grounds, employers should ensure their arbitration agreements (1) are concise and use plain English and (2) do not include one-sided clauses that—as a practical matter—require employees but not employers to relinquish rights, such as:

  • A waiver of remedies and relief before administrative agencies
  • A blanket waiver of Private Attorneys General Act claims or representative claims generally
  • Broad confidentiality requirements for the arbitration process

Even if drafted as mutually applicable restrictions, courts are likely to interpret such clauses as unilateral and find them unconscionable because most of the time employees will seek such remedies.

And given the increased frequency of electronically delivered and signed onboarding agreements, employers should ensure that their onboarding systems:

  • Display the text of arbitration agreements in a regular size font. Confirm that this is the case even when arbitration agreements are viewed on mobile devices. A bonus add-on option would be to allow viewers to zoom in on the text.
  • Provide arbitration agreements for non-English speaking employees in their native language.
  • Implement systems and checks to compel employees to read the arbitration agreement prior to signing it. Put controls in place requiring employees to scroll and review the arbitration agreement before they have the ability to check an “I agree” box or sign the agreement. Having employees initial key provisions of the arbitration agreement is even better.
  • Implement systems and checks to ensure that only the designated employee can sign the arbitration agreement and that the employee’s signature can be verified.
  • Offer employees alternatives to the electronic review and signature of arbitration agreements to ensure that all employees are afforded an equal opportunity to review such agreements regardless of their access to mobile devices (i.e. make paper copies available).