Yesterday, a Ninth Circuit panel sided with a coalition of business groups to affirm a preliminary injunction that stopped California state officials from enforcing California's AB 51, a 2019 law that would have effectively prevented the formation of employment arbitration agreements in California. (Mayer Brown lawyers, including the authors of this Legal Update, filed the lawsuit on behalf of the U.S. Chamber of Commerce and the California Chamber of Commerce and led briefing and argument in the Ninth Circuit.)
If AB 51 had been allowed to go into effect, the law would have imposed criminal and civil penalties on businesses offering to enter into arbitration agreements—whether as a condition of employment or on an opt-out basis. The business group plaintiffs argued that AB 51 is preempted by the Federal Arbitration Act (“FAA”), and the coalition persuaded the district court to issue a temporary restraining order and preliminary injunction against the law.
On appeal, a divided Ninth Circuit panel initially reversed in part, concluding that California could evade FAA preemption by regulating the formation or attempted formation of arbitration agreements so long as it did not prevent the enforcement of an arbitration agreement once formed. After the business groups sought rehearing by the Ninth Circuit en banc, the panel withdrew its opinion and yesterday replaced it with a new opinion reaching the opposite result.
In the new opinion, the Ninth Circuit panel, by a 2-1 vote,...
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