As you know from prior editions of this newsletter, the enforceability of California Labor Code § 432.6, a statute enacted in 2020 that prohibits and criminalizes mandatory employee arbitration agreements, has been uncertain.
The Ninth Circuit Court of Appeals has finally concluded that Labor Code § 432.6 is preempted by the Federal Arbitration Act (“FAA”). After vacating a prior opinion that found the law was only partly preempted, the court held that the FAA fully preempts the statute, reasoning that a state law that discriminates against the formation of an arbitration agreement is preempted, even if the agreement is ultimately enforceable.
Absent further review by the Supreme Court, the Ninth Circuit’s conclusion that the FAA preempts Labor Code § 432.6 will likely lead to the law being permanently enjoined. While the Ninth Circuit’s opinion does not end the litigation, it is a major decision that establishes that employers are not currently prohibited from requiring an arbitration agreement as a condition of employment (if their agreement is governed by the FAA).
We recommend that all employers review and update their arbitration agreements accordingly.