Chamber of Commerce of the United States v. Bonta
The Federal Arbitration Act preempts California’s AB 51, which imposed civil and criminal penalties on employers for requiring arbitration agreements as a condition of employment.
Chamber of Commerce of the United States v. Bonta (9th Cir. 2023) 62 F.4th 473
Arbitration
FAA Preemption
AB 51
Federal
Affirmed
In brief. The Ninth Circuit held that the Federal Arbitration Act preempts California’s Assembly Bill 51 — codified at Labor Code section 432.6 and Government Code section 12953 — which made it a misdemeanor and an unlawful employment practice for an employer to require an employee, “as a condition of employment,” to waive the right to litigate and agree to arbitration. (Chamber of Commerce of the United States v. Bonta (9th Cir. 2023) 62 F.4th 473, 477–490.) Because AB 51 singles out and burdens the formation of arbitration agreements, it conflicts with the FAA’s equal-treatment principle and objectives, and the court affirmed the preliminary injunction against its enforcement. (Id. at p. 490.)
Facts
In 2019 California enacted Assembly Bill 51, which prohibited employers from requiring, as a condition of employment, continued employment, or the receipt of any employment-related benefit, that an applicant or employee “waive any right, forum, or procedure” for a violation of the FEHA or the Labor Code — language aimed at mandatory arbitration agreements. (62 F.4th at pp. 477–480; Lab. Code, § 432.6.) The statute backed that prohibition with civil and criminal sanctions: an employer who violated section 432.6 could be “guilty of a misdemeanor,” and the conduct was an “unlawful employment practice” under Government Code section 12953. (Id. at pp. 480–481.) Curiously, AB 51 also provided that arbitration agreements actually executed would remain enforceable. (Ibid.) The U.S. Chamber of Commerce and other business groups sued the California Attorney General to enjoin AB 51 as preempted by the FAA. (Id. at pp. 480–481.)
Procedural history
The district court granted a preliminary injunction barring enforcement of AB 51 as to arbitration agreements governed by the FAA. (62 F.4th at pp. 481–482.) A divided Ninth Circuit panel initially issued a different decision, but on rehearing it withdrew that opinion and, in this 2023 decision, affirmed the district court’s injunction. (Ibid.) The court held that the FAA preempts AB 51, and that the Chamber was likely to succeed on the merits. (Id. at pp. 482–490.)
Issue
Does the Federal Arbitration Act preempt AB 51, which penalizes an employer for requiring an arbitration agreement as a condition of employment but purports to leave executed agreements enforceable? (62 F.4th at pp. 477, 482.)
Holding
Yes. The FAA preempts AB 51. “State laws and rules that single out . . . arbitration provisions” for special burdens are preempted under section 2 of the FAA and its “equal-treatment principle,” which requires that arbitration agreements be placed “on equal footing with all other contracts.” (62 F.4th at pp. 485–488.) AB 51’s civil and criminal sanctions burden the very act of entering into an arbitration agreement and therefore interfere with the FAA’s purpose and objectives. (Id. at pp. 486–490.) The preliminary injunction was properly granted. Affirmed. (Id. at p. 490.)
Reasoning
1. The FAA’s equal-treatment principle. The court began with the FAA’s command that arbitration agreements be “valid, irrevocable, and enforceable” and treated like any other contract. (62 F.4th at pp. 484–486.) A state law is preempted if it “single[s] out” arbitration for disfavor or “interferes with fundamental attributes of arbitration,” under AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 and Kindred Nursing Centers L.P. v. Clark (2017) 581 U.S. 246. (Ibid.)
2. AB 51 burdens contract formation. The court rejected California’s argument that AB 51 was a permissible regulation of pre-agreement employer conduct that left executed agreements untouched. (62 F.4th at pp. 486–489.) By imposing “civil and criminal sanctions on any employer who” requires an arbitration agreement, AB 51 deterred the formation of such agreements — the very step the FAA protects. (Id. at pp. 486–488.) A state cannot do indirectly, by penalizing the act of contracting for arbitration, what it cannot do directly by refusing to enforce the agreement. (Ibid.) The “executed-agreement-still-enforceable” provision did not save the statute, because the penalty attached to the conduct of entering the agreement. (Id. at pp. 488–489.)
3. Conflict preemption. Because AB 51 stood “as an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA — promoting arbitration by enforcing agreements according to their terms — it was conflict-preempted. (62 F.4th at pp. 489–490.) The court therefore affirmed the injunction. (Ibid.)
4. The dissent. Judge Lucero dissented. He argued AB 51 “operates in a substantively different manner” than the laws the Supreme Court has held preempted, because it regulates pre-agreement employer coercion rather than the enforceability of arbitration agreements, and merely “codif[ies] what the enactors of the FAA . . . took as a given: arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual.” (62 F.4th at pp. 490 et seq. (dis. opn. of Lucero, J.).) In his view, a state may protect employees from being forced into arbitration without offending the FAA. (Ibid.)
Significance
Bonta is the controlling Ninth Circuit authority invalidating California’s effort to curb mandatory employment arbitration. As a practical matter, AB 51 (Lab. Code § 432.6) is unenforceable as to arbitration agreements governed by the FAA, so California employers may continue to require arbitration agreements as a condition of employment without the civil or criminal exposure AB 51 threatened. The decision is a significant application of Concepcion’s equal-treatment and obstacle-preemption principles to a novel, penalty-based state strategy, and it reinforces that states cannot deter arbitration by targeting the act of contracting for it. It belongs alongside Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639, and Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104 in defining the post-Concepcion boundary between state employee-protective policy and the FAA. See the Review’s coverage of the arbitration line.
Key quotes
“State laws and rules that single out . . . arbitration provisions . . . are preempted by § 2 of the Federal Arbitration Act.” (Bonta, supra, 62 F.4th at p. 485.)
AB 51 imposed “civil and criminal sanctions on any employer who” required an arbitration agreement, burdening the formation of such agreements. (Id. at pp. 480, 488.)
Practice pointer
AB 51 does not bar mandatory employment arbitration. After Bonta, California employers may require arbitration agreements as a condition of employment for FAA-covered agreements without AB 51’s civil or criminal exposure, and plaintiffs cannot rely on section 432.6 to void such agreements. The viable challenges to an employer’s arbitration agreement remain the generally applicable ones — unconscionability under Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 and OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111 — and the non-waivable PAGA representative claim under Iskanian (as structured by Viking River and Adolph). Confirm the current procedural status and any further appellate developments before relying on AB 51 in either direction.
Open questions
The decision leaves open how states may, if at all, regulate the voluntariness of employment arbitration without running afoul of the FAA — the core of Judge Lucero’s dissent. Continued questions include the treatment of agreements not governed by the FAA, the interaction of Bonta with evolving Supreme Court arbitration doctrine, and whether any narrower employee-protective measure could survive preemption.