13 F.4th 766
9th Cir.2021Background:
- California enacted AB 51 (Cal. Lab. Code § 432.6) prohibiting employers from requiring applicants or employees, as a condition of employment, to waive FEHA or Labor Code rights or forums; opt-out/affirmative‑action preservation clauses treated as conditions.
- § 432.6(f) declares nothing in the section is intended to invalidate a written arbitration agreement otherwise enforceable under the Federal Arbitration Act (FAA).
- Placement of § 432.6 in the Labor Code links it to § 433 (misdemeanor) and Cal. Gov’t Code § 12953 (unlawful employment practice), exposing employers to criminal penalties and civil enforcement/remedies.
- Plaintiffs (U.S. & California Chambers of Commerce, trade groups) sued, obtained a district‑court preliminary injunction enjoining enforcement of § 432.6(a)–(c) as to arbitration agreements covered by the FAA, claiming federal preemption.
- Ninth Circuit majority: reversed the district court’s holding that § 432.6(a)–(c) are preempted by the FAA and vacated the preliminary injunction; but held that the criminal (§ 433) and civil‑enforcement (§ 12953) mechanisms are preempted to the extent they apply to executed arbitration agreements covered by the FAA.
- Judge Ikuta dissented, arguing the statute is an obvious, covert attack on arbitration and is preempted under Kindred Nursing and earlier circuit authority (creates circuit split).
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cal. Lab. Code § 432.6(a)–(c) is preempted by the FAA | § 432.6 singles out arbitration formation and thus conflicts with the FAA’s command to place arbitration agreements on equal footing; Kindred Nursing controls | § 432.6 regulates pre‑agreement conduct to protect voluntariness and explicitly preserves enforceable FAA agreements (§ 432.6(f)); it does not invalidate executed arbitration agreements | Not preempted: § 432.6(a)–(c) govern pre‑agreement employer conduct and do not create a contract defense that invalidates executed arbitration agreements, so FAA does not preempt those provisions |
| Whether Cal. Lab. Code § 433 (criminal) and Gov’t Code § 12953 (civil enforcement) are preempted as applied to executed arbitration agreements | These enforcement provisions are necessary to give effect to § 432.6 and do not criminalize execution of arbitration agreements per se | The enforcement provisions attach sanctions to conduct and would punish employers for entering arbitration agreements | Preempted in part: criminal (§ 433) and civil (§ 12953) sanctions are preempted to the extent they apply to executed arbitration agreements covered by the FAA (they conflict with § 2) |
| Whether the district court’s preliminary injunction should stand | Plaintiffs argued likelihood of success on FAA preemption and risk of irreparable harm justified injunctive relief | Defendants argued § 432.6 is not preempted and district court erred as a matter of law | Vacated: because plaintiffs were unlikely to succeed on preemption of § 432.6(a)–(c), the district court abused its discretion; injunction vacated and case remanded (but preemption of enforcement mechanisms affirmed in part) |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA’s principal purpose is to ensure arbitration agreements are enforced according to their terms)
- Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019) (arbitration is a matter of consent; courts must respect arbitration agreements’ terms)
- Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017) (FAA preempts state rules that treat arbitration agreements less favorably than other contracts, including certain formation‑stage rules)
- Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468 (1989) (FAA contains no express preemption clause and does not occupy the entire field)
- Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996) (state law conditioning enforceability of arbitration agreements on special notice was preempted)
- Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018) (FAA enforces arbitration agreements as written; saving‑clause defenses must be generally applicable)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (FAA enacted to overrule judiciary’s refusal to enforce arbitration agreements)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (federal policy favors arbitration agreements)
- Sec. Indus. Ass’n v. Connolly, 883 F.2d 1114 (1st Cir. 1989) (state regulation barring mandatory arbitration as condition to account relationships preempted as a covert obstacle)
- Saturn Distrib. Corp. v. Williams, 905 F.2d 719 (4th Cir. 1990) (state law that effectively prohibited nonnegotiable arbitration agreements conflicted with the FAA)