Employers who prefer to have workplace disputes decided through arbitration can now insist that employees agree to that remedy as a condition of employment. A recent federal court ruling, which strikes down a state statute prohibiting forced arbitration agreements, promises to make arbitration the norm for resolving many job-related disputes.

The decision by the Ninth U.S. Circuit Court of Appeals follows a U.S. Supreme Court precedent holding that the Federal Arbitration Act (FAA) preempts state laws banning compulsory arbitration agreements in employment. Other circuit courts have come to the same conclusion.

The California legislature had passed a bill that would make it a crime to require employees to consent to arbitration for employment related claims. Although the law would not invalidate the employer’s right to enforce arbitration agreements, the employer would be committing a crime by compelling an arbitration agreement and could face fines or other penalties.  

In Chamber of Commerce v. Bonta, several business sued the state attorney general, arguing that a state law criminalizing forced arbitration would conflict with the purposes of the FAA. A district court stopped the law from taking effect. The Ninth Circuit initially upheld the law, finding that this scenario was legally allowable. The court reasoned that the FAA’s preemption does not apply to conduct that took place prior to the signing of an arbitration agreement. Therefore, a state law could prohibit coercion to sign the agreement but must uphold the agreement once it is executed. However, the court then reconsidered and reversed its own decision and ruled that the FAA preempts the California statute.

The federal court’s decision may be subject to rehearing or appeal to the U.S. Supreme Court. In the alternative, the state legislature may try to enact another law that discourages arbitration in employment matters. In the meantime, California employers have the option of requiring their employees to bring certain claims to arbitration. The same applies to multistate employers with California operations.

Quinn & Kronlund LLP in Stockton is one of the premier alternative dispute resolution firms in northern California. We provide effective arbitration and mediation services in employment related matters. Feel free to contact us online or call 209-943-3950 for a consultation.