The panel of the Ninth Circuit Court of Appeals that largely upheld California’s law banning mandatory arbitration agreements in the employment context just withdrew its decision. On August 22, 2022, two of the three judges on the panel decided to withdraw the panel’s prior opinion in Chamber of Commerce of the United States of America v. Bonta regarding Labor Code 432.6 which sought to prohibit mandatory arbitration as a condition of employment.

Section 432.6 prevents employers from requiring applicants to sign arbitration agreements “as a condition of employment, continued employment, or the receipt of any employment-related benefit.” The law adds criminal and civil sanctions against any employer that retaliated, discriminated, threatened, or discharged an employee who refused to consent to arbitration.

The Bonta decision was originally authored by Judge Carlos Lucero, a member of the Tenth Circuit Court of Appeals, sitting by designation, and joined by Judge William Fletcher. In that decision, the Ninth Circuit terminated the district court’s injunction that prohibited enforcement of Section 432.6 on the grounds that it ran afoul of the Federal Arbitration Act (FAA). In so doing, the Ninth Circuit held that individuals who refused to sign arbitration agreements could sue under Section 432.6’s anti-retaliation provisions because the FAA only applies to arbitration agreements and  does not govern pre-formation conduct.

The panel affirmed the district court’s decision to enjoin imposition of civil and criminal sanctions against employers that violate Section 432.6 on FAA grounds. It also held mandatory arbitration agreements that are otherwise enforceable under the FAA remain enforceable, notwithstanding Section 432.6.

Judge Sandra Ikuta authored a scathing dissent, strongly suggesting the opinion would be reversed by the Supreme Court of the United States given its controlling FAA jurisprudence. She likened California to a “clown bop bag” that responds to getting “smacked down for violating the Federal Arbitration Act” by “bouncing back with even more creative methods to sidestep the law.”

Judge Fletcher joined Judge Ikuta in voting to withdraw the opinion and rehear the case. The panel further ruled that a prior petition for rehearing en banc is moot following the withdrawal of its opinion.

The withdrawal comes after the June 2022 Supreme Court of the United States decision in Viking River Cruises, Inc. v. Moriana, in which the high court upheld the FAA’s preemption of state law interfering with arbitration of individual Labor Code violations brought under California’s Private Attorneys General Act (PAGA).

Key Takeaways

The Ninth Circuit panel withdrew its opinion, thereby allowing enforcement of certain aspects of California’s law banning mandatory arbitration. Presumably, the preliminary injunction blocking the law will remain in effect while the panel reconsiders its decision. The fact that Judge Fletcher supported withdrawal, along with Judge Ikuta, suggests the two have become more aligned in their thinking since Bonta was originally issued. Although this could be good news for employers, no particular outcome is guaranteed. Given the continuing uncertainty, employers may want to consider their use of mandatory arbitration until a final decision is rendered.