The Ninth Circuit Court of Appeals reversed in part a 2020 preliminary injunction issued by a district court and resurrected California Labor Code Section 432.6, the state's latest attempt to outlaw arbitration in the employment context. As a result, employers in California once again face the prospect of incurring criminal and civil penalties for requesting that employees and applicants agree to arbitrate future disputes.
In a 2-1 ruling, the Ninth Circuit held that at least part of Section 432.6 is not preempted by the Federal Arbitration Act insofar as it prohibits "pre-agreement employer behavior," requiring an applicant or employee to enter into an arbitration agreement — but only in those instances in which the employee fails or refuses to execute the agreement. If, however, the employee does sign the arbitration agreement, then the statute does not apply per Section 432.6(f), and the employer is not in violation of the statute or subject to its criminal and civil penalties, which the Ninth Circuit struck down in that limited context. Section 432.6 applies to arbitration agreements that were entered into, modified or extended on or after January 1, 2020.
In a spirited dissent, Judge Sandra Segal Ikuta noted:
[I]f the employer offers an arbitration agreement to the prospective employee as a condition of employment, and the...
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