Case Information
*1 FOR PUBLICATION
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT C HAMBER OF C OMMERCE OF THE No. 20-15291 U NITED S TATES OF A MERICA ; C ALIFORNIA C HAMBER OF D.C. No. C OMMERCE ; N ATIONAL R ETAIL 2:19-cv-02456- F EDERATION ; C ALIFORNIA KJM-DB R ETAILERS A SSOCIATION ; N ATIONAL A SSOCIATION OF S ECURITY
C OMPANIES ; H OME C ARE OPINION A SSOCIATION OF A MERICA ;
C ALIFORNIA A SSOCIATION FOR H EALTH S ERVICES AT H OME ,
Plaintiffs-Appellees , v.
R OB B ONTA [*] , in his official capacity as the Attorney General of the State of California; L ILIA G ARCIA -
B ROWER , in her official capacity as the Labor Commissioner of the State of California; J ULIE A. S U , in her official capacity as the Secretary of the California Labor and Workforce Development Agency; K EVIN R ICHARD K ISH , in his official [*] Rob Bonta has been substituted for his predecessor, Xavier Becerra, as California Attorney General under Fed. R. App. P 43(c)(2). capacity as Director of the California Department of Fair Employment and Housing of the State of California,
Defendants-Appellants. *2 Appeal from the United States District Court for the Eastern District of California Kimberly J. Mueller, Chief District Judge, Presiding Argued and Submitted December 7, 2020 San Francisco, California Filed September 15, 2021 Before: Carlos F. Lucero, [**] William A. Fletcher, and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Lucero; Dissent by Judge Ikuta [**] The Honorable Carlos F. Lucero, United States Circuit Judge for the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
SUMMARY [***]
Federal Arbitration Act / Preemption
The panel reversed, in part, the district court’s conclusion that California Assembly Bill 51 is preempted by the Federal Arbitration Act; affirmed the district court’s determination that the civil and criminal penalties associated with AB 51 were preempted; vacated the district court’s preliminary injunction enjoining AB 51’s enforcement; and remanded for further proceedings.
AB 51, which added § 432.6 to the California Labor Code, was enacted with the purpose of ensuring that individuals are not retaliated against for refusing to consent to the waiver of rights and procedures established in the California Fair Employment and Housing Act and the *3 California Labor Code; and to ensure that any contract relating to those rights and procedures be entered into as a matter of voluntary consent, not coercion. Other provisions of the California Code, specifically Labor Code § 433 and Government Code § 12953, render violations of § 432.6 a misdemeanor offense and open an employer to potential civil sanctions. The district court concluded that AB 51 placed agreements to arbitrate on unequal footing with other contracts and also that AB 51 stood as an obstacle to the purposes and objectives of the Federal Arbitration Act (“FAA”). The district court preliminarily enjoined enforcement of § 432.6(a)–(c) as to arbitration agreements covered by the FAA.
[***] This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. The panel held that California Labor Code § 432.6 neither conflicted with the language of § 2 of the FAA nor created a contract defense by which executed arbitration agreements could be invalidated or not enforced. A thorough review of the historical context of the FAA, its legislative history, and subsequent Supreme Court jurisprudence demonstrated that Congress was focused on the enforcement and validity of consensual written agreements to arbitrate and did not intend to preempt state laws requiring that agreements to arbitrate be voluntary. The panel held that § 432.6 did not make invalid or unenforceable any agreement to arbitrate, even if such agreement was consummated in violation of the statute. Rather, the panel noted that while mandating that employer- employee arbitration agreements be consensual, § 432.6 specifically provides that nothing in the section was intended to invalidate a written arbitration agreement that was otherwise enforceable under the FAA. The panel determined that § 432.6 applied only in the absence of an agreement to arbitrate and expressly provided for the validity and enforceability of agreements to arbitrate. The panel held that because the district court erred in concluding that § 432.6(a)–(c) were preempted by the FAA, it necessarily abused its discretion in granting Appellees a preliminary injunction.
The panel agreed, however, that the civil and criminal penalties associated with AB 51 stood as an obstacle to the purposes of the FAA and were therefore preempted. The panel held that Section § 432.6 was not preempted by the FAA because it was solely concerned with pre-agreement *4 employer behavior, but because the accompanying enforcement mechanisms sanctioning employers for violating § 432.6 necessarily included punishing employers for entering into an agreement to arbitrate. The panel held that a state law that incarcerates an employer for six months for entering into an arbitration agreement directly conflicts with § 2 of the FAA. Therefore, the panel held that Government Code § 12953 and Labor Code § 433 were preempted to the extent that they applied to executed arbitration agreements covered by the FAA. Dissenting, Judge Ikuta stated that AB 51 has a disproportionate impact on arbitration agreements by making it a crime for employers to require arbitration provisions in employment contracts. She stated that the majority abetted California’s attempt to evade the FAA and the Supreme Court’s caselaw by upholding this anti- arbitration law on the pretext that it barred only nonconsensual agreements. Judge Ikuta stated that the majority’s ruling conflicted with the Supreme Court’s clear guidance in Kindred Nursing Centers Ltd. Partnership v. Clark , 137 S. Ct. 1421, 1425 (2017), which held that the FAA invalidates state laws that impede the formation of arbitration agreements. The majority ruling also created a circuit split with sister circuits, which have held that too- clever-by-half workarounds and covert efforts to block the formation of arbitration agreements are preempted by the FAA just as much as laws that block enforcement of such agreements.
6 C HAMBER OF C OMMERCE V . B ONTA
COUNSEL
Chad A. Stegeman (argued), Deputy Attorney General; Michelle M. Mitchell, Supervising Deputy Attorney; Thomas S. Patterson, Senior Assistant Attorney General; Rob Bonta, Attorney General; Office of the Attorney General, San Francisco, California; for Defendants- Appellants.
Andrew J. Pincus (argued), Archis A. Parasharami, and Daniel E. Jones, Mayer Brown LLP, Washington, D.C.; Bruce J. Sarchet and Maurice Baskin, Littler Mendelson PC, Sacramento, California; Donald M. Falk, Mayer Brown LLP, Palo Alto, California; Erika C. Frank, California Chamber of Commerce, Sacramento, California; Steven P. Lehotsky and Jonathan Urick, U.S. Chamber Litigation Center, Washington, D.C.; for Plaintiffs-Appellees. Cliff Palefsky and Matt Koski, McGuinn Hillsman & Palefsky, San Francisco, California, for Amicus Curiae California Employment Lawyers Association.
OPINION
LUCERO, Circuit Judge:
The Federal Reporter is awash with descriptions of
“judicial hostility” to arbitration that spurred enactment of
the Federal Arbitration Act (FAA). Evolution of this
“hostility” is traced not to the particular desires of individual
judges but to two doctrines of English common law: ouster
*6
(which made illegal any agreement that lessened a statutory
grant of judicial jurisdiction) and revocability (which
allowed a party to withdraw consent to arbitrate at any point
prior to the arbitrator’s ruling). These two doctrines were
followed for their “antiquity” rather than their “excellence or
reason.”
See U.S. Asphalt Ref. Co. v. Trinidad Lake
Petroleum Co.
,
This goal was achieved by enactment of the FAA, which
intended “to make the contracting party live up to his
agreement.” H.R. Rep. No. 68-96, at 1 (1924). Following
enactment of the FAA, parties could “no longer refuse to
perform [their] contract when it [became] disadvantageous,”
ensuring that an arbitration agreement would be “placed
upon the same footing as other contracts, where it belongs.”
Id.
In furtherance of this congressional intent, the Court has
repeatedly instructed that “the principal purpose of the FAA
is to ensure that private arbitration agreements are enforced
according to their terms.”
AT&T Mobility LLC v.
Concepcion
,
The jurisprudence surrounding the preemptive scope of the FAA has grown on the precedential trellis of these basic principles. Each time the Supreme Court has clarified the preemptive scope of the FAA, it has done so by ruling on the enforceability or validity of executed agreements to arbitrate, explaining that the FAA does not preempt the field of arbitration. Today we are asked to abandon the framework of FAA preemption of state rules that selectively invalidate or refuse to enforce arbitration agreements, ignore the holding of Volt , and nullify a California law enacted to codify what the enactors of the FAA took as a given: that arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual. As we read California Labor Code § 432.6, the state of California has chosen to assure that entry into an arbitration agreement by an employer and employee is mutually consensual and to declare that compelling an unwilling party to arbitrate is an unfair labor practice. We are asked by plaintiffs to hold that *7 the FAA requires parties to arbitrate when but one party desires to do so. Our research leads to nothing in the statutory text of the FAA or Supreme Court precedent that authorizes or justifies such a departure from established jurisprudence, and we decline to so rule. Thus, we must reverse the judgment of the district court.
Yet operation of other provisions within the California code renders a violation of § 432.6 a misdemeanor offense and opens an employer to potential civil sanctions. The imposition of civil and criminal sanctions for the act of executing an arbitration agreement directly conflicts with the FAA and such an imposition of sanctions is indeed preempted. We therefore affirm the district court as to the application of Labor Code § 433 and Government Code § 12953 to arbitration agreements covered by § 1 of the FAA.
I A California Governor Gavin Newsom signed into law California Assembly Bill 51, 2019 Cal. Stats. Ch. 711 (AB 51), on October 10, 2019. Section 1 of AB 51 declares that “it is the policy of this state to ensure that all persons have the full benefit of the rights, forums, and procedures established in the California Fair Employment and Housing Act . . . and the Labor Code.” AB 51. Pursuant to this policy, AB 51 was enacted with the “purpose of . . . ensur[ing] that individuals are not retaliated against for refusing to consent to the waiver of those rights and procedures and to ensure that any contract relating to those rights and procedures be entered into as a matter of voluntary consent, not coercion.” Id. Arbitration is not singled out by AB 51. Rather, AB 51 covers a range of waivers, including non-disparagement clauses and non-disclosure agreements.
AB 51 added § 432.6 to the California Labor Code. That section provides:
(a) A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act (Part 2.8 (commencing with Section *8 10 C HAMBER OF C OMMERCE V . B ONTA 12900) of Division 3 of Title 2 of the Government Code) or this code, including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation. (b) An employer shall not threaten, retaliate or discriminate against, or terminate any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation of the California Fair Employment and Housing Act or this code, including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation. (c) For purposes of this section, an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment.
. . .
(f) Nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act (9 U.S.C. Sec. 1 et seq.). *9 Cal. Lab. Code § 432.6. Its placement in Article 3 of the Labor Code brings § 432.6 under Labor Code § 433, which states that “[a]ny person violating this article is guilty of a misdemeanor.” This, in turn, makes a violation of § 432.6 “punishable by imprisonment in a county jail, not exceeding six months, or by a fine not exceeding one thousand dollars ($1,000), or both.” Cal. Lab. Code § 23.
Finally, AB 51 also added § 12953 to the California Government Code. That section provides: “It is an unlawful employment practice for an employer to violate Section 432.6 of the Labor Code.” Cal. Gov’t Code § 12953. Other provisions within the Government Code create civil sanctions for “unlawful employment practices,” including investigation by the Department of Fair Housing and Employment and potential civil litigation brought either by that Department on behalf of an aggrieved individual or, if the Department declines to initiate litigation, by the individual in a private suit. See Cal. Gov’t Code §§ 12960– 12965.
B
AB 51 was enacted with an effective date of January 1, 2020. Cal. Lab. Code § 432.6(h). On December 9, 2019, Appellees filed a complaint for declaratory and injunctive relief, seeking a declaration that AB 51 was preempted by the FAA and asking the court to preliminarily and permanently enjoin Appellants from enforcing the statute. The same day, Appellees filed a motion for a preliminary injunction. While the injunction motion was pending, Appellees filed a motion for a temporary restraining order, which was granted on December 30, 2019, two days before AB 51 was to take effect.
The trial court conducted a hearing on the motion for a preliminary injunction on January 10, 2020. It granted Appellees’ motion for a preliminary injunction via minute order on January 31, 2020 and issued a detailed decision on February 7, 2020. After resolving issues of jurisdiction that are not contested on appeal, [1] the court turned to the merits of Appellees’ preliminary injunction motion. Concluding that AB 51 placed agreements to arbitrate on unequal footing with other contracts and also that it stood as an obstacle to the purposes and objectives of the FAA, the trial court found that Appellees were likely to succeed on the merits of their claim. After determining the other injunction factors also favored Appellees, the court preliminarily enjoined *10 Appellants from enforcing § 432.6(a)–(c) as to arbitration agreements covered by the FAA.
II
“A preliminary injunction is an extraordinary remedy
never awarded as of right.”
Winter v. Nat. Res. Def. Council,
Inc.
, 555 U.S. 7, 24 (2008). “A plaintiff seeking a
preliminary injunction must establish that he is likely to
succeed on the merits, that he is likely to suffer irreparable
harm in the absence of preliminary relief, that the balance of
equities tips in his favor, and that an injunction is in the
public interest.”
Id.
at 20. “The first factor—likelihood of
success on the merits—is the most important factor.”
California v. Azar
,
banc) (quotations omitted). “If a movant fails to establish
likelihood of success on the merits, we need not consider the
other factors.”
Id.
“We review a district court’s decision to
grant or deny a preliminary injunction for abuse of
discretion.”
Roman v. Wolf
, 977 F.3d 935, 941 (9th Cir.
2020). We review the legal issues underlying the grant de
novo “because a district court would necessarily abuse its
discretion if it based its ruling on an erroneous view of law.”
adidas Am., Inc. v. Skechers USA, Inc.
,
III A The Supremacy Clause states: This Constitution, and the laws of the United States . . . shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding.
U.S. Const. art. VI, cl. 2. It “provides a rule of decision for
determining whether federal or state law applies in a
particular situation.”
Kansas v. Garcia
,
Conflict preemption manifests in two ways: “impossibility” preemption and “obstacle” preemption. Impossibility preemption occurs when “it is impossible . . . to comply with both state and federal requirements” and obstacle preemption occurs when a “state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Ryan v. Editions Ltd. W., Inc. , 786 F.3d 754, 761 (9th Cir. 2015) (quotation omitted).
B
At issue in this appeal is the preemptive scope of
9 U.S.C. § 2, the “primary substantive provision of the
[FAA].”
Concepcion
,
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part *12 C HAMBER OF C OMMERCE V . B ONTA 15 thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Conflict preemption analysis under the FAA follows the basic structure outlined above, but the sheer volume of FAA preemption jurisprudence has created an FAA-specific gloss to the doctrines of impossibility and obstacle preemption.
To understand how impossibility preemption operates in
FAA cases, a brief discussion of the statute’s “saving clause”
is required. The last clause of § 2 provides that “an
agreement in writing” to arbitrate a dispute “shall be valid,
irrevocable, and enforceable,
save upon such grounds as
exist at law or in equity for the revocation of any contract
.”
9 U.S.C. § 2 (emphasis added). The saving clause “permits
agreements to arbitrate to be invalidated by generally
applicable contract defenses, such as fraud, duress, or
unconscionability, but not by defenses that apply only to
arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.”
Blair v. Rent-A-Ctr., Inc.
,
928 F.3d 819, 825 (9th Cir. 2019) (quoting
Concepcion
,
It is this “equal plane” or “equal footing” principle that guides impossibility preemption under the FAA. If a state- law contract defense treats arbitration agreements less favorably than any other contract—that is, if the defense allows for an agreement to arbitrate to be invalidated or not enforced in circumstances where another contract would be enforced or deemed valid—that contract defense does not fall within the saving clause. Outside the protective ambit of the saving clause, a contract defense that provides for the invalidation or nonenforcement of an arbitration agreement *13 is in direct conflict with the FAA’s mandate; it is thus impossible for the contract defense and the FAA to coexist, and the FAA must prevail. Importantly, the “equal footing principle” applies the same to a contract defense that “discriminat[es] on its face against arbitration” as it does to “any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” Id. at 1426.
If a state rule places arbitration agreements on equal
footing with other contracts and thus falls within the saving
clause, it may still be preempted by “the ordinary working
of conflict pre-emption principles,” including obstacle
preemption.
Geier v. Am. Honda Motor Co.
,
With this understanding of preemption under the FAA, we turn to the principal question before us: Is § 432.6 of the California Labor Code preempted by § 2 of the FAA? [2]
C
Preemption analysis begins with the text of the two
statutes. The FAA and § 432.6 do not conflict because, by
its terms, § 2 of the FAA simply does not apply to § 432.6.
The California law does not create a contract defense that
allows for the invalidation or nonenforcement of an
agreement to arbitrate, nor does it discriminate on its face
against the enforcement of arbitration agreements. Indeed,
the only reference in § 432.6 to executed arbitration
agreements covered by the FAA is a provision that protects
their enforcement.
See
Cal. Lab. Code § 432.6(f). That
*14
§ 432.6 cannot be used to invalidate, revoke, or fail to
enforce an arbitration agreement removes it from saving
clause jurisprudence. Supreme Court and Ninth Circuit
caselaw uniformly applies saving clause analysis in
instances where a party relies on a contract defense or state
rule to invalidate or not enforce an existing agreement to
arbitrate.
See, e.g.
,
Epic Sys. Corp.
,
of cases, the present appeal does not concern a state rule that
provides a contract defense through which an agreement to
arbitrate may be invalidated.
See Concepcion
, 563 U.S.
at 339. Nor does it “prohibit[] outright the arbitration of a
particular type of claim.”
Id.
at 341. Therefore, it is not
“impossible” for § 432.6 and the FAA to coexist.
See Ryan
,
Concluding the contrary, the trial court relied largely on Kindred Nursing and Casarotto . See Chamber of Com. of United States v. Becerra , 438 F. Supp. 3d 1078, 1097–98 (E.D. Cal. 2020). It reasoned that by prohibiting an employer from forcing a prospective or current employee to “waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act,” id. at 1087 (quoting Cal. Lab. Code § 432.6), § 432.6 “embod[ied] . . . a legal rule hinging on the primary characteristic of an arbitration agreement, and placing arbitration agreements in a class apart from any contract.” Id. at 1098 (quotations omitted) (citing Kindred Nursing , 137 S. Ct. at 1427; Casarotto , 517 U.S. at 688). This reasoning would be persuasive if either (1) § 432.6 regulated the enforcement or validity of arbitration agreements or (2) Kindred Nursing or Casarotto held that regulation of pre- agreement conduct was preempted by the FAA. But neither condition is met.
As discussed, § 432.6 does not make invalid or unenforceable any agreement to arbitrate, even if such agreement is consummated in violation of the statute. Rather, while mandating that employer-employee arbitration *15 agreements be consensual, it specifically provides that “[n]othing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.” Cal. Lab. Code § 432.6(f). Placing a pre-agreement condition on the waiver of “any right, forum, or procedure” does not undermine the validity or enforceability of an arbitration agreement—its effects are aimed entirely at conduct that takes place prior to the existence of any such agreement. Both Kindred Nursing and Casarotto analyzed state rules that rendered an executed agreement to arbitrate invalid or unenforceable. Neither preempted a rule that regulated pre-agreement behavior.
Kindred Nursing
considered the “clear-statement rule”
announced by the Kentucky Supreme Court. 137 S. Ct. at
1426. At issue in that case were two arbitration agreements
executed by individuals who were authorized through
powers of attorney to act on behalf of others.
Id.
at 1424–
25. At least one authorization was broad enough for it to be
“impossible to say that entering into an arbitration agreement
was not covered.”
Id.
at 1426 (quotation omitted and
alteration adopted). Despite this, the Kentucky Supreme
Court invalidated the arbitration agreements. It explained
that “the jury guarantee is the sole right the [Kentucky]
Constitution declares ‘sacred’ and ‘inviolate,’” and, as such,
“an agent could deprive her principal of an ‘adjudication by
judge or jury’ only if the power of attorney ‘expressly so
provided.’”
Id.
at 1426 (alteration adopted) (quoting
Extendicare Homes, Inc. v. Whisman
,
20 C HAMBER OF C OMMERCE V . B ONTA By its terms, then, the Act cares not only about the “enforce[ment]” of arbitration agreements, but also about their initial “valid[ity]”—that is, about what it takes to enter into them. Or said otherwise: A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the Act than a rule selectively refusing to enforce those agreements once properly made.
Id. at 1428.
It is this passage that the district court and Appellees
contend controls the outcome of the present appeal. They
focus on the language “what it takes to enter into them” for
the proposition that the FAA preempts regulation of pre-
agreement behavior.
See Becerra
,
For similar reasons, Casarotto does not support Appellees’ case. Casarotto considered a Montana statute that “declare[d] an arbitration clause unenforceable unless notice that the contract is subject to arbitration is typed in underlined capital letters on the first page of the contract.” 517 U.S at 683 (quotation omitted and alterations adopted). The Court held that the Montana statute was preempted by the FAA, concluding it “directly conflict[ed] with § 2 of the FAA because the State’s law conditions the enforceability of arbitration agreements on compliance with a special notice requirement not applicable to contracts generally.” Id. at 687. Casarotto is an example of straightforward conflict preemption analysis of a state rule that declared an executed arbitration agreement invalid. It does not support the proposition that the FAA preempts state regulation of pre- 22
agreement behavior in the absence of an executed arbitration agreement.
California Labor Code § 432.6 neither conflicts with the language of § 2 of the FAA nor creates a contract defense by which executed arbitration agreements may be invalidated or not enforced. Under the “impossibility” preemption framework, § 432.6 is not preempted by the FAA.
Even though § 432.6 does not directly conflict with the
FAA, it may still be preempted if it “stands as an obstacle to
the accomplishment and execution of the full purposes and
objectives of Congress.”
Hines
,
Congress passed the FAA “to overrule the judiciary’s
longstanding refusal to enforce agreements to arbitrate.”
Dean Witter Reynolds, Inc. v. Byrd
,
The context of the FAA’s passage was thus the widespread opposition to English common law doctrines that mandated that consensual written arbitration agreements were invalid and unenforceable. Securing the validity and enforceability of arbitration agreements was precisely what Congress intended to achieve through the FAA. The House Report accompanying its passage declared: “The purpose of this bill is to make valid and enforcible [sic] agreements for arbitration contained in contracts involving interstate commerce or within the jurisdiction [of] admiralty, or which may be the subject of litigation in the Federal courts.” H.R. Rep. No. 68-96, at 1 (1924). The Senate Report agreed, describing the purpose of the statute as “[t]o make valid and enforceable written provisions or agreements for arbitration *19 24 C HAMBER OF C OMMERCE V . B ONTA of disputes arising out of contracts, maritime transactions, or commerce among the States or Territories or with foreign nations.” S. Rep. No. 68-536, at 1 (1924). The House Report also makes explicit that the FAA was laser-focused on ensuring that people who agreed to arbitrate a dispute were held to their word:
Arbitration agreements are purely matters of contract, and the effect of the bill is simply to make the contracting party live up to his agreement. He can no longer refuse to perform his contract when it becomes disadvantageous to him. An arbitration agreement is placed upon the same footing as other contracts, where it belongs.
H.R. Rep. No. 68-96, at 1.
In the almost-century since it became law, the Supreme
Court has expounded on the congressional purpose
animating the FAA, explaining that its passage signified “a
congressional declaration of a liberal federal policy favoring
arbitration agreements, notwithstanding any
state
substantive or procedural policies to the contrary.”
Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp.
,
In light of Congress’ clear purpose to ensure the validity and enforcement of consensual arbitration agreements according to their terms, it is difficult to see how § 432.6, which in no way affects the validity and enforceability of such agreements, could stand as an obstacle to the FAA. Irrespective of AB 51’s enforcement mechanisms, an employee may attempt to void an arbitration agreement that he was compelled to enter as a condition of employment on the basis that it was not voluntary. If a court were to find that such a lack of voluntariness is a generally applicable contract defense that does not specifically target agreements to arbitrate, the arbitration agreement may be voided in accordance with saving clause jurisprudence. This specific question is not before us, and we do not answer it.
The district court focused its obstacle preemption analysis on the potential civil and criminal liability AB 51 imposes on employers who include a compulsory arbitration clause as a condition of employment. See Becerra , 438 F. Supp. 3d at 1099–1100. Appellees dedicate a substantial portion of their brief to the same concern. As explained more fully below, we agree that the civil and criminal penalties associated with AB 51 stand as an obstacle to the purposes of the FAA and are therefore preempted. Outside of their concerns over potential civil and criminal liability, Appellees’ sole remaining argument for obstacle preemption is that § 432.6 interferes with their “federally protected right to enter into arbitration agreements with their workers.” Of course, nothing in § 2 grants an employer the right to force arbitration agreements on unwilling employees. The only “federally protected right” conferred by the FAA is the right to have consensual agreements to arbitrate enforced according to their terms. Because nothing in § 432.6 interferes with this right, it does not stand as an obstacle to the purposes and objectives of the FAA.
D
The dissent expounds on the expansive nature of FAA preemption and details the perceived invidious intent of the California Legislature. [3] Yet for all its colorful language, it does not meaningfully engage with the question at the core of this case: Does the text of the FAA or the precedent *21 interpreting it expand the preemptive scope of the statute to situations in which there is no agreement to arbitrate at issue? As explained above, the answer to this question is “no.” That answer undergirds our resolution of this case and undermines the entirety of the dissent’s argument.
Attempting to escape the conclusion that this case falls outside of existing precedent [4] delineating the preemptive scope of the FAA, the dissent asserts that we “misread[] the clear import” of Kindred Nursing , which it claims “confirmed the rule that the FAA invalidates state laws that [3] Contrary to the dissent’s implications, it is unremarkable that the California Legislature would be cognizant of relevant federal law and make efforts to draft a statute that avoided preemption. Indeed, one could argue that writing and passing laws that are not preempted is a core duty of a state legislature.
[4] Our dissenting colleague asserts that “we don’t need to wait until the next Supreme Court reversal” to hold that AB 51 is preempted by the FAA. To the contrary, basic principles of federalism caution us against expanding the preemptive scope of a federal statute absent explicit instruction from the high court.
impede the formation of arbitration agreements.” A review of the cited portion of Kindred Nursing reveals no such broad holding. Rather, the Supreme Court is explicit that the FAA preempts a state rule that “selectively find[s] arbitration contracts invalid because improperly formed.” Kindred Nursing , 137 S. Ct. at 1428. It was not happenstance, as the dissent asserts, that Kindred Nursing evaluated a state rule that declared invalid certain executed arbitration agreements. Instead, the existence of an agreement to arbitrate was crucial to its holding. It was the very fact that the Kentucky rule invalidated an executed agreement to arbitrate that ran afoul of the FAA’s mandate that “an arbitration agreement . . . be treated as ‘valid, irrevocable, and enforceable.’” Id. (quoting 9 U.S.C. § 2). The dissent is correct to explain that Kindred Nursing emphasized that the FAA preempts rules affecting the initial validity of arbitration agreements, but that is not at issue in this case. As explained above, we are presented with a state rule that applies only in the absence of an agreement to arbitrate and that expressly provides for the validity and enforceability of agreements to arbitrate. The text of the FAA does not preempt such a rule, and, despite the dissent’s attempt to shoehorn its argument into the holding of Kindred Nursing , nor does the governing caselaw.
E
The regulation of pre-agreement employer behavior in
§ 432.6 does not run afoul of the FAA, but the civil and
criminal sanctions attached to a violation of that section do.
They stand as an obstacle to the “liberal federal policy
favoring arbitration agreements,”
Moses H. Cone Mem’l
Hosp.
,
As mentioned, § 433 of the California Labor Code makes any violation of that article, including § 432.6, a misdemeanor offense. Labor Code § 23 makes any misdemeanor within the Labor Code “punishable by imprisonment in a county jail, not exceeding six months, or by a fine not exceeding one thousand dollars ($1,000), or both.” Cal. Lab. Code § 23. Additionally, AB 51 added § 12953 to the California Government Code, which makes a violation of Labor Code § 432.6 “an unlawful employment practice.” This, in turn, subjects an individual or entity who violates § 432.6 to civil sanctions including state investigation and private litigation. See Cal. Gov’t Code §§ 12960–12965.
Regulation of pre-agreement conduct in § 432.6 differs
significantly from these enforcement mechanisms. Section
§ 432.6 is not preempted by the FAA because it is solely
concerned with pre-agreement employer behavior, but the
accompanying enforcement mechanisms that sanction
employers for violating § 432.6 necessarily
include
punishing employers for entering into an agreement to
arbitrate.
[5]
A state law that incarcerates an employer for six
months for entering into an arbitration agreement “directly
conflicts with § 2 of the FAA.”
Casarotto
,
C HAMBER OF C OMMERCE V . B ONTA 29
conclude that, much like a state may not “prohibit[] outright
the arbitration of a particular type of claim,”
Kindred
Nursing
,
IV
Appellees have not established that they are likely to
succeed on the merits of their complaint for declaratory and
injunctive relief, and, therefore, “we need not consider the
other [preliminary injunction] factors.”
Azar
, 950 F.3d at
1083. Because the district court erred in concluding that
§ 432.6(a)–(c) were preempted by the FAA it “necessarily
abuse[d] its discretion” in granting Appellees a preliminary
injunction.
adidas Am.
,
[6]
Appellees assert that enjoining application of § 433 to agreements
covered by the FAA would amount to a “judicial rewrite of [California’s]
statutory scheme.” Not so. It is well settled that “when confronting a
constitutional flaw in a statute, we try to limit the solution to the
problem” by “for example, . . . enjoin[ing] only the unconstitutional
applications of a statute while leaving other applications in force . . . .”
Ayotte v. Planned Parenthood of N. New England
,
V
We REVERSE IN PART the trial court’s conclusion that AB 51 is preempted by the FAA, VACATE the *24 preliminary injunction, and REMAND for further proceedings consistent with this opinion. The parties shall bear their own costs on appeal.
IKUTA, Circuit Judge, dissenting:
Like a classic clown bop bag, no matter how many times California is smacked down for violating the Federal Arbitration Act (FAA), the state bounces back with even more creative methods to sidestep the FAA. This time, California has enacted AB 51, which has a disproportionate impact on arbitration agreements by making it a crime for employers to require arbitration provisions in employment contracts. Cal. Lab. Code §§ 432.6(a)–(c), 433; Cal. Gov’t Code § 12953. And today the majority abets California’s attempt to evade the FAA and the Supreme Court’s caselaw by upholding this anti-arbitration law on the pretext that it bars only nonconsensual agreements. The majority’s ruling conflicts with the Supreme Court’s clear guidance in Kindred Nursing Centers Ltd. Partnership v. Clark , 137 S. Ct. 1421, 1428–29 (2017), and creates a circuit split with the First and Fourth Circuits. Because AB 51 is a blatant attack on arbitration agreements, contrary to both the FAA and longstanding Supreme Court precedent, I dissent.
I
By its terms, the FAA ensures that an arbitration
agreement “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2. The FAA
preempts any state law that stands “as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress.”
Hines v. Davidowitz
,
AB 51 is just such a state law that obstructs the purpose of the FAA. The history of AB 51 reveals it was the culmination of a many-year effort by the California legislature to prevent employers from requiring an arbitration provision as a condition of employment. California has long known that the FAA preempted laws that made arbitration agreements unenforceable, because the Supreme Court has so often struck down its anti-arbitration legislation or judge-made rules. [1]
In light of these rulings, the California legislature took a
different approach to anti-arbitration legislation. In 2015, it
passed Assembly Bill 465, which banned employers from
requiring arbitration agreements as a condition of
employment and rendered unenforceable any offending
contract. Text of AB 465, 2015–16 Cal. Leg., Reg. Sess.
(2015).
[2]
California Governor Jerry Brown vetoed this bill
on the ground that such a “blanket ban” had been
“consistently struck down in other states as violating the
Federal Arbitration Act” and noted that the California
Supreme Court and United States Supreme Court had
invalidated similar legislation. Governor’s Veto Message
for AB 465, 2015–16 Cal. Leg., Reg. Sess. (2015);
see, e.g.
,
Marmet Health Care Ctr., Inc. v. Brown
,
[2] The relevant legislative history referenced here is publicly available on the California Legislative Information website: https://leginfo.legislature.ca.gov/.
contracts.”
DIRECTV, Inc. v. Imburgia
,
Undeterred, the state legislature tried again in 2018 and
passed AB 3080, which prohibited an employer from
requiring an employee to waive a judicial forum as a
condition of employment. Text of AB 3080, 2017–18 Cal.
Leg., Reg. Sess. (2018). Governor Brown exercised his veto
power again, explaining that AB 3080 “plainly violates
federal law.” Governor’s Veto Message for AB 3080, 2017–
18 Cal. Leg., Reg. Sess. (2018). Governor Brown cited the
“clear” direction from the United States Supreme Court in
Imburgia
,
Twice-vetoed but still undeterred, the California Assembly introduced AB 51 in December 2018. This bill, now before us, took the same approach as the vetoed AB 3080: instead of barring enforcement of arbitration agreements offered as a condition of employment, it instead penalized the formation or attempted formation of such agreements. Text of AB 51, 2019–20 Cal. Leg., Reg. Sess. (2019); see also Cal. Lab. Code §§ 432.6(a)–(c), 433. While it prohibited an employer from requiring an applicant for employment to enter an arbitration agreement, it provided that an executed arbitration agreement was nevertheless enforceable. See Cal. Lab. Code § 432.6(a)–(b), (f).
Accompanying legislative reports reveal the purpose of
AB 51 and explain the oddity of penalizing the formation of
*27
34
C HAMBER OF C OMMERCE V . B ONTA arbitration agreements while permitting their enforcement.
The California Senate Judiciary Committee report on AB 51
recognized that “there is little doubt that, if enacted, the bill
would be challenged in court and there is some chance,
under the current composition of the U.S. Supreme Court,
that it would be found preempted.” Senate Judiciary
Committee Report at 7, 2019–20 Cal. Leg., Reg. Sess.
(2019). These reports acknowledge candidly that, in light of
such anticipated scrutiny, “AB 51 seeks to sidestep the
preemption issue.” Senate Labor, Public Employment and
Retirement Committee Report at 4, 2019–20 Cal. Leg., Reg.
Sess. (2019). The reports assured legislators that AB 51
“successfully navigates around” Supreme Court precedent
and “avoids preemption by applying only to the condition in
which an arbitration agreement is made, as opposed to
banning arbitration itself.” Senate Judiciary Committee
Report at 8; Assembly Labor and Employment Committee
Report at 3, 2019–20 Cal. Leg., Reg. Sess. (2019). AB 51’s
author noted that this contrivance gave the legislature “a
reasoned case” that the bill would not be preempted, given
that “[t]here has not been a preemption case in the absence
of an arbitration agreement.” Senate Judiciary Committee
Report at 7; Assembly Labor and Employment Committee
Report at 3. Another key component of the “reasoned case”
for avoiding preemption, according to the legislators, was
that AB 51 prevented “forced arbitration,” which was not the
“result of mutual consent” but was imposed on employees
“against their will.” Assembly Judiciary Committee Report
at 5, 2019–20 Cal. Leg., Reg. Sess. (2019); Senate Judiciary
Committee Report at 4. According to the legislators, this
rationale was consistent with Supreme Court cases stressing
the fundamental rule that arbitration agreements be
consensual. Senate Judiciary Committee Report at 8 (citing
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.
,
California’s new governor, Gavin Newsom, signed the bill into law, even though AB 51 was identical in many respects to vetoed AB 3080. See id. at 9.
II A As this history suggests, the California legislature *28 developed AB 51 with the focused intent of opposing arbitration and sidestepping the FAA’s preemptive sweep by penalizing the formation, or attempted formation, of disfavored arbitration agreements but not interfering with the enforcement of such agreements.
Specifically, under Section 432.6 of the California Labor Code, an employer “shall not, as a condition of employment . . . require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of the California Fair Employment and Housing Act [(FEHA)]” or the California Labor Code, “including the right to file and pursue a civil action or a complaint with . . . any court.” Cal. Lab. Code § 432.6(a). Thus, employers may not require employees to sign a standard employment contract that includes an arbitration provision, even if the contract includes a voluntary opt-out clause. See Cal. Lab. Code § 432.6(c). Moreover, an employer cannot refuse to hire a prospective employee who declines to enter into an arbitration agreement or otherwise “threaten, retaliate or discriminate against” such an employee. Cal. Lab. Code § 432.6(b). Violating Section 432.6 amounts to an “unlawful employment practice” for which aggrieved employees and the state may bring civil suits against employers. See Cal. Gov’t Code §§ 12953, 12960. Violating Section 432.6 also constitutes a criminal offense. See Cal. Lab. Code § 433. Should the employee sign such an employment contract, however, the arbitration agreement it contains is perfectly enforceable because Section 432.6(f) provides that “[n]othing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.” Cal. Lab. Code § 432.6(f).
In short, AB 51 criminalizes offering employees an agreement to arbitrate, even though the arbitration provision itself is lawful and enforceable once the agreement is executed. The question is, does this too-clever-by-half workaround actually escape preemption? The majority says it does, but this is clearly wrong: under Supreme Court precedent, Section 432.6 is entirely preempted by the FAA.
B
Although the Supreme Court has not addressed California’s specific legislative gimmick—criminalizing contract formation if it includes an arbitration provision— this is not surprising, given that California designed the gimmick to sidestep any existing Supreme Court precedents. *29 But even so, the Supreme Court has made it clear that the FAA preempts this type of workaround, which is but the latest of the “great variety of devices and formulas” disfavoring arbitration. See Concepcion , 563 U.S. at 342 (cleaned up).
As a threshold matter, California’s circumvention
exemplifies the exact sort of “‘hostility to arbitration’ that
led Congress to enact the FAA.”
Kindred Nursing
, 137 S.
Ct. at 1428 (quoting
Concepcion
,
More specifically, Supreme Court precedent makes clear
that the FAA preempts laws like AB 51 that burden the
formation of arbitration agreements. Long ago, the Supreme
Court held that the FAA preempted a Montana law making
an arbitration clause unenforceable unless it had a specific
type of notification on the first page of the contract.
See
Doctor’s Assocs., Inc. v. Casarotto
,
Kindred Nursing has now confirmed the rule that the FAA invalidates state laws that impede the formation of arbitration agreements. In Kindred Nursing , the Court struck down the Kentucky Supreme Court’s “clear-statement rule” which provided that a person holding a power of attorney for a family member could not enter into an arbitration agreement for that family member, unless the power of attorney gave the person express authority to do so. 137 S. Ct. at 1425–26. The Supreme Court held that this clear- statement rule—which imposed a burden only on contract *30 38 C HAMBER OF C OMMERCE V . B ONTA formation—violated the FAA, because it “singles out arbitration agreements for disfavored treatment.” Id. at 1425.
The majority attempts to distinguish Kindred Nursing on the ground that it addresses “pre-agreement behavior to the extent it provided the basis to invalidate already executed contracts.” Majority at 20. This misreads the clear import of the case. In Kindred Nursing , the parties opposing arbitration, like the majority here, advanced an argument “based on the distinction between contract formation and contract enforcement.” 137 S. Ct. at 1428. According to their argument, Kentucky’s clear-statement rule “affects only contract-formation, because it bars agents without explicit authority from entering into arbitration agreements.” Id. The opponents argued (like the majority here) that “the FAA has no application to contract formation issues” and claimed that the “FAA’s statutory framework applies only after a court has determined that a valid arbitration agreement was formed.” Id. (cleaned up). Although the opponents acknowledged that the FAA “requires a State to enforce all arbitration agreements (save on generally applicable grounds) once they have come into being,” they claimed (like the majority here) that “States have free rein to decide—irrespective of the FAA’s equal-footing principle— whether such contracts are validly created in the first instance.” Id.
The Court expressly rejected these arguments.
Id.
“By
its terms,” the Court explained, the FAA “cares not only
about the enforcement of arbitration agreements, but also
about their initial validity—that is, about what it takes to
enter into them.”
Id.
(cleaned up). Because the Kentucky
rule “specially impeded the ability of attorneys-in-fact to
enter into arbitration agreements” and “thus flouted the
*31
FAA’s command to place those agreements on an equal
footing with all other contracts,” the FAA preempted
Kentucky’s rule.
Id.
at 1429. This common-sense
conclusion that state law cannot impede parties’ abilities to
enter arbitration agreements fit “well within the confines of
(and goes no further than) present well-established law.”
Id.
(quoting
Imburgia
,
Kindred Nursing
’s holding that the FAA preempts rules
that burden the formation of an arbitration agreement,
see
In addition to conflicting with
Kindred Nursing
, the
majority’s ruling today creates a split with two of our sister
circuits. Long before
Kindred Nursing
reached its common-
sense conclusion, our sister circuits prevented state efforts
like California’s that attempted to sidestep the FAA while
disfavoring arbitration. The First Circuit held that the FAA
preempted Massachusetts regulations
that prohibited
securities firms from requiring clients to agree to arbitration
*32
“as a nonnegotiable condition precedent to account
relationships.”
Sec. Indus. Ass’n v. Connolly
,
a given dispute, an arbitration agreement might be declared void.” Id. at 1124. Thus, the regulations were preempted as “at odds with the policy which infuses the FAA.” Id.
The Fourth Circuit similarly held that the FAA
preempted a Virginia law that made it unlawful for
automobile manufacturers and distributors to fail to include
a particular clause in franchise agreements.
Saturn Distrib.
Corp. v. Williams
,
AB 51’s contrived approach closely
tracks
the
impermissible workarounds disapproved of by the First and
Fourth Circuits.
See Connolly
, 883 F.2d at 1122;
Saturn
,
Taking into account these precedents and the broad
preemptive scope of the FAA, it is clear that the FAA
preempts AB 51, which prohibits employers from entering
into arbitration agreements with their employees as a
condition of employment. Under
Kindred Nursing
, such a
rule is invalid,
III
The contrary arguments raised by California and the majority are not persuasive.
A
First, California and the majority claim that AB 51 does not pose an obstacle to the FAA because it is simply a prohibition against so-called “forced arbitration.” Under this theory, AB 51 seeks to protect employees from involuntary contracts forced upon them by employers. According to the majority, California enacted AB 51 “to assure that entry into an arbitration agreement by an employer and employee is mutually consensual and to declare that compelling an [5] Although the majority claims the dissent “does not meaningfully engage” with the core question whether the preemptive scope of the FAA extends “to situations in which there is no agreement to arbitrate at issue,” Majority at 26, it is the majority that dodges this core question by ignoring our sister circuits’ rulings that the FAA does indeed preempt state laws that impede parties from freely entering into arbitration agreements.
C HAMBER OF C OMMERCE V . B ONTA 43 unwilling party to arbitrate is an unfair labor practice.” Majority at 8. These guardrails protecting employees from unwanted arbitration provisions do not interfere with the FAA, the majority reasons, because nothing in 9 U.S.C. § 2 “grants an employer the right to force arbitration agreements on unwilling employees.” Majority at 25. The majority’s reasoning parrots the assurances offered by California legislators that AB 51 is consistent with the Supreme Court’s instruction that “consent is the touchstone of arbitration agreements” and that AB 51 merely ensures “employees may choose to waive their rights in order to get or keep a job, but they are never forced to.” Senate Judiciary Committee Report at 8.
There is no merit to this argument, which misunderstands basic principles of California contract law, Supreme Court caselaw regarding consent in arbitration cases, and AB 51 itself. Contrary to the majority, a contract may be “consensual,” as that term is used in contract law, even if one party accepts unfavorable terms due to unequal bargaining power.
It is a basic principle of contract law that a contract is not
enforceable unless there is mutual, voluntary consent.
See,
e.g.
, Cal. Civ. Code §§ 1565, 1567;
Monster Energy Co. v.
Schechter
, 7 Cal. 5th 781, 789 (2019);
Morrill v.
Nightingale
, 93 Cal. 452, 455 (1892). It has long been
established that parties to a contract are generally deemed to
have consented to all the terms of a contract they sign, even
if they have not read it.
See, e.g.
,
Marin Storage & Trucking
Inc. v. Benco Contracting & Eng’g, Inc.
, 89 Cal. App. 4th
1042, 1049 (2001);
Greve v. Taft Realty Co.
, 101 Cal. App.
343, 351–52 (1929). This is true even if the contract at issue
is an adhesion contract, defined by California courts as “a
standardized contract, which, imposed and drafted by the
party of superior bargaining strength, relegates to the
subscribing party only the opportunity to adhere to the
contract or reject it,”
Neal v. State Farm Ins. Cos.
, 188 Cal.
App. 2d 690, 694 (1961). Despite unequal bargaining
*35
power, “a contract of adhesion is fully enforceable according
to its terms unless certain other factors are present,” such as
when a provision “does not fall within the reasonable
expectations of the weaker or ‘adhering’ party” or when a
provision “is unduly oppressive or unconscionable.”
Graham v. Scissor-Tail, Inc
.,
Of course, mandatory arbitration provisions in employment contracts of adhesion are not enforceable if the provisions are procedurally and substantively unconscionable, or otherwise unenforceable under generally applicable contract rules. OTO, L.L.C. v. Kho , 8 Cal. 5th 111, 125–26 (2019). Unequal bargaining power, “economic pressure,” “sharp practices,” and “surprise” can help establish procedural unconscionability. Id. at 126–29 (cleaned up). Moreover, if a party is forced to sign a contract by threats or physical coercion, for instance, the contract would lack mutual consent and be unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Therefore, there is no risk of employers forcing arbitration agreements on unwilling employees, as those terms are understood in California contract law. Majority at 8, 25. AB 51 does nothing to change these basic principles.
In short, under California law, an employee “consents” to an employment contract by entering into it, even if the contract was a product of unequal bargaining power and even if it contains terms (such as an arbitration provision) that the employee dislikes, so long as the terms are not invalid due to unconscionability or other generally applicable contract principles. An employee’s preference for litigating disputes with an employer, without more, does not make an arbitration agreement nonconsensual.
Because the parties to a contract are deemed to consent
to its terms, the “basic precept that arbitration ‘is a matter of
consent, not coercion,’” means only that courts must “ensure
that ‘private arbitration agreements are enforced according
to their terms’” even in the face of state laws imposing
different requirements on the contracting parties.
Stolt-
Nielsen
,
This principle applies equally to employment contracts
and employment-related lawsuits. In upholding a contract
provision requiring arbitration of Age Discrimination in
Employment Act claims, the Supreme Court rejected the
argument that the agreement was invalid due to the “unequal
bargaining power between employers and employees.”
Gilmer v. Interstate/Johnson Lane Corp
.,
Accordingly, there is no support for California’s
description of AB 51 as simply an assurance that employees
will not be the victims of forced arbitration or be compelled
to arbitrate claims against their wills. Majority at 8, 25. For
the same reason, there is no support for the majority’s view
that AB 51 merely takes away an employer’s ability “to force
arbitration agreements on unwilling employees.” Majority
at 25. Rather, AB 51 disproportionately targets and burdens
employers offering arbitration agreements as a condition of
employment, which “does not place arbitration contracts on
equal footing with all other contracts” and therefore fails to
give “due regard to the federal policy favoring arbitration.”
Imburgia
,
B
Second, the majority attempts to rescue its opinion by ruling that AB 51’s civil and criminal penalties under Section 12953 of the California Government Code and Section 433 of the California Labor Code “are preempted to the extent that they apply to executed arbitration agreements covered by the FAA.” Majority at 29. The majority acknowledges that the FAA preempts any rule that imposes liability for conduct resulting in an executed arbitration agreement. Majority at 28–29. In case the effect of this novel holding is not clear, it means that if the employer offers an arbitration agreement to the prospective employee as a condition of employment, and the prospective employee executes the agreement, the employer may not be held civilly or criminally liable. But if the prospective employee refuses to sign, then the FAA does not preempt civil and criminal liability for the employer under AB 51’s provisions. In other words, the majority holds that if the employer successfully “forced” employees “into arbitration against their will,” Senate Judiciary Committee Report at 4, the employer is safe, but if the employer’s efforts fail, the employer is a criminal.
Despite holding that AB 51 is preempted in part, the
majority’s unusual bifurcated approach still conflicts with
the FAA. Most important, it does not “place arbitration
agreements upon the same footing as other contracts.”
Southland
,
IV
In sum, AB 51’s transparent effort to sidestep the FAA in order to disfavor arbitration agreements in employment contracts is meritless. By upholding this maneuver, the majority conflicts with Kindred Nursing , which held that the FAA invalidates state laws that impede the formation of arbitration agreements. 137 S. Ct. at 1425. The majority also silently splits from our sister circuits, which have held that too-clever-by-half workarounds and covert efforts to block the formation of arbitration agreements are preempted by the FAA just as much as laws that block enforcement of such agreements. So we don’t need to wait until the next Supreme Court reversal to know that we must apply those principles here. The majority’s bifurcated, half-hearted, and circuit-splitting approach to invalidating AB 51 makes little sense, except to the extent it aims at abetting California in disfavoring arbitration. Because the appellants here have demonstrated a likelihood of success on the merits and the district court correctly determined that the remaining preliminary injunction factors supported injunctive relief, I would affirm the district court. I therefore dissent.