CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; CALIFORNIA CHAMBER OF COMMERCE; NATIONAL RETAIL FEDERATION; CALIFORNIA RETAILERS ASSOCIATION; NATIONAL ASSOCIATION OF SECURITY COMPANIES; HOME CARE ASSOCIATION OF AMERICA; CALIFORNIA ASSOCIATION FOR HEALTH SERVICES AT HOME, Plaintiffs-Appellees, v. ROB BONTA, in his official capacity as the Attorney General of the State of California; LILIA GARCIA-BROWER, in her official capacity as the Labor Commissioner of the State of California; JULIE A. SU, in her official capacity as the Secretary of the California Labor and Workforce Development Agency; KEVIN RICHARD KISH, in his official capacity as Director of the California Department of Fair Employment and Housing of the State of California, Defendants-Appellants.
No. 20-15291
D.C. No. 2:19-cv-02456-KJM-DB
United States Court of Appeals for the Ninth Circuit
Filed February 15, 2023
FOR PUBLICATION
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
Submission Withdrawn August 22, 2022
Resubmitted August 22, 2022
San Francisco, California
Before: Carlos F. Lucero,* William A. Fletcher, and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Ikuta;
Dissent by Judge Lucero
SUMMARY**
Civil Rights
Affirming the district court‘s grant of a preliminary injunction in favor of plaintiffs, a collection of trade association and business groups (collectively, the Chamber of Commerce), the panel held that the Federal Arbitration Act (FAA) preempted
The panel explained that Assembly Bill 51 criminalizes only contract formation; an arbitration agreement executed in violation of this law is enforceable. California took this approach to avoid conflict with Supreme Court precedent, which holds that a state rule that discriminates against arbitration is preempted by the Federal Arbitration Act. Under
The panel stated that Doctor‘s Assocs., Inc. v. Casarotto, 517 U.S. 683 (1996), and Kindred Nursing Ctrs. Ltd. P‘ship v. Clark, 137 S. Ct. 1421 (2017), make it clear that state rules that burden the formation of arbitration agreements stand as an obstacle to the FAA. Although the plaintiffs in Casarotto and Kindred Nursing were attempting to enforce an executed arbitration agreement, the Court‘s rationale for invalidating state rules burdening the formation of arbitration agreements was equally applicable to a state rule like AB 51, which discriminates against the formation of an arbitration agreement but does not make an improperly formed arbitration agreement unenforceable. The panel concluded that the approach adopted by the Supreme Court in Casarotto and Kindred Nursing for determining whether the FAA preempts a state rule limiting the ability of parties to form arbitration agreements applies to state rules that prevent parties from entering into arbitration agreements in the first place. The panel further agreed with two sister circuits that the FAA preempts a state rule that discriminates against arbitration by discouraging or prohibiting the formation of an arbitration agreement. See Saturn Distrib. Corp. v. Williams, 905 F.2d 719, 723 (4th Cir. 1990); Sec. Indus. Ass‘n v. Connolly, 883 F.2d 1114, 1123–24 (1st Cir. 1989).
Applying these principles to determine whether AB 51 was preempted by the FAA, the panel held that AB 51‘s penalty-based scheme to inhibit arbitration agreements before they are formed violates the “equal-treatment principle” inherent in the FAA and is the type of device or formula evincing hostility towards arbitration that the FAA was enacted to overcome. Because the FAA‘s purpose is to further Congress‘s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 was therefore preempted.
Because all provisions of AB 51 work together to burden the formation of arbitration agreements, the panel rejected California‘s argument that the court could sever
Because AB 51 was preempted by the FAA, the district court correctly held that the Chamber of Commerce was likely to succeed on the merits of its claim for declaratory and injunctive relief. And because California did not challenge the district court‘s holding that the remaining factors also weighed in favor of the Chamber of Commerce, the panel held that the district court did not abuse its discretion when it granted the Chamber of Commerce‘s motion for a preliminary injunction.
Dissenting, Judge Lucero stated that the majority nullified a California law codifying what the enactors of the FAA and the Supreme Court took as a given: arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual. Judge Lucero stated that AB 51 operates in a substantively different manner than state rules previously struck down as preempted by the FAA. Unlike the state statutes in Kindred Nursing and Casarotto, which directly invalidated arbitration agreements, AB 51 regulates conduct preceding arbitration agreements. AB 51 ensures that arbitration agreements are entered on fair terms yet does not go so far as to invalidate arbitration agreements that are not. The majority‘s application of Kindred Nursing and Casarotto to AB 51 improperly expanded prior jurisprudence.
COUNSEL
Chad A. Stegeman (argued) and Kristin A. Liska, Deputy Attorneys General; Michelle M. Mitchell, Supervising Deputy Attorney General; Thomas S. Patterson, Senior Assistant Attorney General; Xavier Becerra; Attorney General of California; Office of the California Attorney General, San Francisco, California; Joshua A. Klein, Deputy Solicitor General, Office of the Attorney General, Oakland, California; for Defendants-Appellants.
Andrew J. Pincus (argued), Archis A. Parasharami, and Daniel E. Jones, Mayer Brown LLP, Washington, D.C.; Donald Falk, Schaerr Jaffe LLP, San Francisco, California; Maurice Baskin, Littler Mendelson PC, Washington, D.C.; Bruce J. Sarchet, Littler Mendelson, Sacramento, California; for Plaintiffs-Appellees.
Cliff M. Palefsky, Keith Ehrman, and Matt Koski, McGuinn Hillsman & Palefsky, San Francisco, California, for Amicus Curiae California Employment Lawyers Association.
George W. Abele and Deisy Castro, Paul Hastings LLP, Los Angeles, California, for Amicus Curiae California Employment Law Council.
Dylan B. Carp and Scott P. Jang, Jackson Lewis PC, San Francisco, California; Angelo I. Amador, Restaurant Law Center, Washington, D.C.; for Amici Curiae Restaurant Law Center and California Restaurant Association.
Fred Hiestand, Fred J. Hiestand APC, Sacramento, California, for Amicus Curiae Civil Justice Association of California.
OPINION
IKUTA, Circuit Judge:
California enacted Assembly Bill 51 (AB 51) to protect employees from what it called “forced arbitration” by making it a criminal offense for an employer to require an existing employee or an applicant for employment to consent to arbitrate specified claims as a condition of employment. But AB 51 criminalizes only contract formation; an arbitration agreement executed in violation of this law is enforceable. California took this approach to avoid conflict with Supreme Court precedent, which holds that a state rule that discriminates against arbitration is preempted by the Federal Arbitration Act (FAA). This appeal raises the question whether the FAA preempts a state rule that discriminates against the formation of an arbitration agreement, even if that agreement is ultimately enforceable. We hold that such a rule is preempted by the FAA.
I
The history and purpose of AB 51 must be understood in the context of California‘s legislative efforts to impose limits on parties’ agreements to arbitrate certain disputes. The FAA embodies a “national policy favoring arbitration,” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006), and the Supreme Court has interpreted its scope broadly, see Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 274 (1995). Over the years, the Supreme Court has struck down a number of California laws or judge-made rules relating to arbitration as preempted by the FAA.1
Mindful of this history, the California legislature engaged in a prolonged effort to craft legislation that would prevent employers from requiring employees to enter into arbitration agreements as a condition of employment, while avoiding conflict with the FAA. In 2015, the California legislature passed Assembly Bill 465, which banned employers from requiring arbitration agreements as a condition of employment and rendered unenforceable any contract including such a requirement. A.B.
Three years later, the state legislature passed AB 3080, which prohibited an employer from requiring an employee to waive a judicial forum as a condition of employment. A.B. 3080, 2018 Leg. (Cal. 2018). Governor Brown exercised his veto power again, explaining that AB 3080 “plainly violates federal law.” Governor‘s Veto Message for A.B. 3080, 2017–18 Cal. Leg., Reg. Sess. (2018). Governor Brown cited the “clear” direction from the United States Supreme Court in DIRECTV, Inc. v. Imburgia, 577 U.S. 47, 58–59 (2015) and Kindred Nursing Ctrs. Ltd. P‘ship v. Clark, 137 S. Ct. 1421, 1428 (2017).
After Governor Brown left office, the California Assembly tried again, introducing AB 51 in December 2018, which added a number of interlocking provisions to the California Labor Code.
First, AB 51 added
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 [FEHA] (Part 2.8 (commencing with Section 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.
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.
There are two methods for enforcing AB 51. The act added
Because the parties to an arbitration agreement must waive the right to litigate in a judicial forum, see
Legislative reports made clear why AB 51 provided that criminal conduct—entering into an arbitration agreement with an employee—does not affect the enforceability of the resultant agreement to arbitrate. The California Senate Judiciary Committee report on AB 51 asserted 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. S. JUDICIARY COMM. REPORT, Reg. Sess., at 8 (Cal. 2019); see also ASSEMBLY COMM. ON LAB. & EMP. REPORT, Reg. Sess., at 3 (Cal. 2019) (same). According to these reports, AB 51 was designed to give the legislature “a reasoned case” that the bill would not be preempted, S. JUDICIARY COMM. REPORT, at 7, given that “[t]here has not been a preemption case in the absence of an arbitration agreement,” ASSEMBLY COMM. ON LAB. & EMP. REPORT, at 3. In short, “AB 51 seeks to sidestep the preemption issue” relating to arbitration agreements. S. COMM. ON LAB., PUB. EMP., & RET. REPORT, Reg. Sess., at 4 (Cal. 2019). In other words, the legislature was persuaded by the legal theory that the FAA did not preempt a state rule that inhibits the formation of an arbitration agreement, but does not render such an agreement unenforceable once executed.
California‘s new governor, Gavin Newsom, signed the bill into law, even though AB 51 was identical in many respects to the vetoed AB 3080. See S. JUDICIARY COMM. REPORT, at 9. AB 51 was enacted with an effective date of January 1, 2020.
On December 9, 2019, a collection of trade associations and business groups
II
“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). “The legal issues underlying” the district court‘s decision “are reviewed de novo,” and “the district court‘s factual findings are reviewed for clear error.” See adidas Am., Inc. v. Skechers USA, Inc., 890 F.3d 747, 753 (9th Cir. 2018) (citations omitted). “A district court abuses its discretion in issuing a preliminary injunction if its decision is based on either an erroneous legal standard or clearly erroneous factual findings.” Negrete v. Allianz Life Ins. Co. of N. Am., 523 F.3d 1091, 1096 (9th Cir. 2008) (citation omitted).
A party moving for preliminary injunctive relief must establish (1) a likelihood of success on the merits, (2) a likelihood of irreparable harm, (3) that the balance of harm tips in the movant‘s favor, and (4) that the injunction is in the public interest. See All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). “The first factor—likelihood of success on the merits—is the most important factor.” California by & through Becerra v. Azar, 950 F.3d 1067, 1083 (9th Cir. 2020) (en banc) (citation and quotation marks omitted). Additionally, when a party seeks a preliminary injunction against the government, as is the case here, the balance of the equities and public interest factors merge. See Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1092 (9th Cir. 2014) (citing Nken v. Holder, 556 U.S. 418, 435 (2009)).
California does not challenge the district court‘s holding that the balance of equities and the public interest weigh in favor of the Chamber of Commerce. Instead, California challenges only the district court‘s holding that AB 51 is preempted by the FAA, and that the Chamber of Commerce is therefore likely to succeed on the merits of their claim for declaratory and injunctive relief.
III
A
We begin by spelling out the applicable principles of preemption. The Supremacy Clause provides that the Constitution and laws of the United States “shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or
A federal statute may expressly preempt state law by enacting a clear statement to that effect. Id. In the absence of an express provision for preemption, the Supreme Court has “found that state law must yield to a congressional Act in at least two circumstances.” Crosby v. Nat‘l Foreign Trade Council, 530 U.S. 363, 372 (2000). “[W]hen the scope of a [federal] statute indicates that Congress intended federal law to occupy a field exclusively,” state law is preempted. Kurns v. R.R. Friction Prods. Corp., 565 U.S. 625, 630 (2012) (quoting Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995) (second alteration in original)). “And even if Congress has not occupied the field, state law is naturally preempted to the extent of any conflict with a federal statute.” Crosby, 530 U.S. at 372. Conflict preemption may occur either where it is “impossible for a private party to comply with both state and federal requirements,” Merck Sharp & Dohme Corp. v. Albrecht, 139 S. Ct. 1668, 1672 (2019), or where, under the circumstances of a particular case, the challenged state law “creates an unacceptable ‘obstacle to the accomplishment and execution of the full purposes and objectives of Congress,‘” Wyeth v. Levine, 555 U.S. 555, 563–64 (2009) (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
A state law may pose an obstacle to a federal statute in various ways. There is no “rigid formula or rule” for determining when an act of Congress preempts a state law. Hines, 312 U.S. at 67. Rather, what constitutes “a sufficient obstacle is a matter of judgment, to be informed by examining the federal statute as a whole and identifying its purpose and intended effects.” Crosby, 530 U.S. at 373. If the purpose and intended effects of the federal statute are blocked by the state law, then “the state law must yield to the regulation of Congress within the sphere of its delegated power.”
B
“The FAA . . . does [not] reflect a congressional intent to occupy the entire field of arbitration.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989). But “even if Congress has not occupied the field, state law is naturally preempted to the extent of any conflict with a federal statute.” Crosby, 530 U.S. at 372 (citations omitted).
Applying the principles of obstacle preemption to determine the FAA‘s preemptive scope, we begin with the FAA‘s “purpose and intended effects,”
In considering the preemptive scope of the FAA, the Supreme Court has focused on cases involving state laws or judge-made rules that single out executed arbitration agreements and prevent the enforcement of such agreements according to their terms. See, e.g., Imburgia, 577 U.S. at 49; Concepcion, 563 U.S. at 344; Allied-Bruce Terminix Cos., Inc., 513 U.S. at 272; Perry, 482 U.S. at 491; Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). The Court has held that such state laws and rules are preempted by
A state rule interferes with arbitration if it discriminates against arbitration on its face or if it “covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements.” Kindred Nursing, 137 S. Ct at 1423. Examples of state rules that disfavor the “defining features” of arbitration include a rule that prohibits an agreement that waives the right to a class action, or one that waives the right to a jury trial, or any other of the myriad “devices and formulas” used to declare arbitration against public policy. See Concepcion, 563 U.S. at 342.
The Court has made clear that the FAA‘s preemptive scope is not limited to state rules affecting the enforceability of arbitration agreements, but also extends to
Casarotto and Kindred Nursing make it clear that state rules that burden the formation of arbitration agreements stand as an obstacle to the FAA. As Kindred Nursing explained, the “FAA 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.” Kindred Nursing, 137 S. Ct. at 1428 (alterations in original). The Court has recognized that it would be “trivially easy for States to undermine the Act—indeed, to wholly defeat it“—by fashioning a rule that would make the formation of any arbitration agreement invalid.
Although the plaintiffs in Casarotto and Kindred Nursing were attempting to enforce an executed arbitration agreement, the Court‘s rationale for invalidating state rules burdening the formation of arbitration agreements is equally applicable to a state rule like AB 51, which discriminates against the formation of an arbitration agreement but does not make an improperly formed arbitration agreement unenforceable. Given the evidence that AB 51‘s unusual structure (criminalizing the act of entering into an agreement, while allowing the parties to enforce it once executed) was for the purpose of “navigating around” Supreme Court precedent, it is hardly surprising that there is no Supreme Court precedent on point. Still, nothing in Casarotto or Kindred Nursing suggests that a state rule targeting only the formation of an arbitration agreement falls outside of the FAA‘s preemptive scope. As the Supreme Court has indicated, if a state could criminalize the conduct of entering into an arbitration agreement, it could entirely defeat the FAA‘s purpose. Kindred Nursing, 137 S. Ct. at 1428. Accordingly, “[t]o restrict the FAA to existing agreements would be to allow states to ‘wholly eviscerate Congressional intent to place arbitration agreements upon the same footing as other contracts.‘” Saturn Distrib. Corp. v. Williams, 905 F.2d 719, 723 (4th Cir. 1990) (quoting Southland Corp., 465 U.S. at 16–17 n.11). We therefore conclude that the approach adopted by the Supreme Court in Casarotto and Kindred Nursing for determining whether the FAA preempts a state rule limiting the ability of parties to form arbitration agreements applies to state rules that prevent parties
Our conclusion “falls well within the confines of (and goes no further than) present well-established law,” Kindred Nursing, 137 S. Ct. at 1429, as indicated by two of our sister circuits, which have reached similar conclusions, see Saturn, 905 F.2d at 724; Sec. Indus. Ass‘n v. Connolly, 883 F.2d 1114, 1123-24 (1st Cir. 1989). In Saturn, the Fourth Circuit considered a Virginia law that prohibited automobile manufacturers and dealers from entering into an agreement that contained a non-negotiable arbitration provision. 905 F.2d at 724. The court rejected the state‘s argument that
Applying this principle to the state law at issue, the Fourth Circuit determined that “Virginia law generally permits contracting parties to make terms nonnegotiable, and singles out arbitration provisions as an exception to that rule.” Id. at 724. It rejected the argument that the law was not discriminatory because the state statute “[did] not mention arbitration, and [could] appl[y] to any contractual provision that denies dealers access to the ‘procedures, forums or remedies’ in Virginia,” such as “forum-selection provisions.” Id. at 724-25. As the court explained, “the mere fact that a statute or regulation does not expressly refer to arbitration is not determinative on the question of whether it impermissibly singles out arbitration provisions,” id. at 725, because a state statute that does not refer to arbitration may be “preempted to the extent that it had the effect of prohibiting arbitration provisions,” id. (citing Southland Corp., 465 U.S. at 16-17 n.11).
Because the state statute was “clearly intended to avoid potentially adhesive arbitration contracts between automobile manufacturers and dealers,” and the state had not “uniformly barred the formation of nonnegotiable contractual terms or declared all contracts of adhesion to be presumptively unenforceable,” the Fourth Circuit concluded that the law treated arbitration agreements “more harshly than other contracts,” and was thus preempted. Id. at 725-26.
The First Circuit reached a similar conclusion in Connolly. In that case, it held that the
We agree with our sister circuits that the
C
We now apply the principles set forth above to determine whether AB 51 is preempted by the
We begin by asking whether AB 51 discriminates against arbitration agreements, either expressly or by disfavoring agreements that have the defining features of arbitration agreements.
AB 51 does not expressly bar arbitration agreements. There is no doubt, though, that AB 51 disfavors the formation of agreements that have the essential terms of an arbitration agreement. AB 51 prevents an employer from entering into a contract that includes non-negotiable terms requiring an employee to waive “any right, forum, or procedure for a violation of any provision of the [FEHA] or [the California Labor Code],” including “the right to file and pursue a civil action.” A.B. 51, 2019 Leg. (Cal. 2019). Because a person who agrees to arbitrate disputes must necessarily waive the right to bring civil actions regarding those disputes in any other forum, AB 51 burdens the defining feature of arbitration agreements.
The burden imposed on the formation of arbitration agreements is severe. AB 51 deters an employer from including non-negotiable arbitration requirements in employment contracts by imposing civil and criminal sanctions on any employer who does so. See
Further, AB 51 “singles out arbitration provisions as an exception” to generally applicable law. Saturn, 905 F.2d at 724. California law generally allows an employer to enter into a contract with an employee that includes non-negotiable terms as a condition of employment, including requirements related to compensation, see Koehl v. Verio, Inc., 142 Cal. App. 4th 1313, 1331 (2006), and drug usage, see Ross v. RagingWire Telecomms., Inc., 42 Cal. 4th 920, 924 (2008). But under AB 51, an employer cannot enter into a contract with non-negotiable terms essential to an arbitration agreement. It is irrelevant that the non-negotiable terms disapproved by AB 51 could also apply to other sorts of contractual provisions (such as forum-selection clauses) because “the Supreme Court has emphasized that the focus should be on whether the statute, either on its face or as applied, imposes burdens on arbitration agreements that do not apply to contracts generally.” Id. at 725; see also Mortensen, 722 F.3d at 1159.
AB 51‘s deterrence of an employer‘s willingness to enter into an arbitration agreement is antithetical to the
D
We reject California‘s arguments to the contrary. First, California argues that because AB 51 regulates the conduct of employers before an arbitration agreement is formed, rather than affecting the validity or enforceability of the executed arbitration agreement itself, it does not conflict with the
There is no merit to these arguments, which misunderstand basic principles of California contract law, Supreme Court caselaw regarding consent in arbitration cases, and AB 51 itself. Contrary to the arguments made by California and the dissent, a contract may be “consensual,” as that term is used in contract law, even if one party accepts unfavorable terms due to some degree of 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.,
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
In short, under California law, an employee can “consent” 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.6 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 agreements to arbitrate are enforced according to their terms‘” even in the face of state laws imposing different requirements on the contracting parties. Stolt-Nielsen, 559 U.S. at 681-82 (quoting Volt, 489 U.S. at 479).
If the parties agreed to resolve a matter by arbitration, “the
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., 500 U.S. 20, 32-33 (1991). The Court stated that “[m]ere inequality in bargaining power” is not a sufficient reason to refuse to enforce an arbitration agreement in the employment context, because “arbitration agreements are enforceable ‘save upon such grounds as exist at law or in equity for the revocation of any contract.‘” Id. at 33 (quoting
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. To the contrary, AB 51‘s interference with the ability of the parties to agree to arbitration stands as an obstacle to the “accomplishment and execution of the full purposes and objectives of Congress,” and “thus creates a scheme inconsistent with the
Because all provisions of AB 51 work together to burden the formation of arbitration agreements, we conclude that the
The dissent‘s proposal to sever
IV
Because AB 51 is preempted by the
AFFIRMED.
LUCERO, Circuit Judge, dissenting:
Since the 1990s, employers have increasingly utilized arbitration agreements to
The jurisprudence surrounding the
California Assembly Bill 51 (AB 51), the California statute at issue, operates in a substantively different manner than state rules previously struck down as preempted by the
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.” 2019 Cal. Stats. Ch. 711 (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, it covers a range of waivers, including non-disparagement clauses and non-disclosure agreements. In short, AB 51 protects persons entering all employment contracts from coercion to waive their rights as employees.
II
A
As the majority indicates, only obstacle preemption is relevant to the present appeal. See Volt, 489 U.S. at 477. Under obstacle preemption, a state statute or rule is preempted if it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011) (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)); see also Ryan v. Editions Ltd. W., Inc., 786 F.3d 754, 761 (9th Cir. 2015). State laws that merely overlap but do not obstruct federal statutes are not preempted. In re Volkswagen “Clean Diesel” Mktg., Sales Pracs. & Prod. Liab. Litig., 959 F.3d 1201, 1213 (9th Cir. 2020).
Broadly, “[t]he principal purpose of the
B
Review of the historical context of the
Securing the validity and enforceability of consensual arbitration agreements was precisely what Congress intended to achieve through the
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.
H.R. Rep. No. 68-96, at 1.
In the almost-century since the
AB 51‘s purpose matches the
C
In determining otherwise, the majority relies largely on Kindred Nursing and Casarotto. These cases concerned preemption of state rules invalidating executed arbitration agreements. The majority would apply the principles of those cases to AB 51, which addresses pre-agreement conduct and does not invalidate executed arbitration agreements. That reasoning would be persuasive if either (1) AB 51 regulated the enforcement or validity of executed arbitration agreements or (2) Kindred Nursing or Casarotto addressed regulation of pre-agreement conduct as preempted by the
AB 51 could not be more precise or explicit: “[n]othing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.”
Kindred Nursing considers a clear statement rule announced by the Kentucky Supreme Court. 581 U.S. at 250. Before that court were two arbitration agreements executed by individuals who were authorized through powers of attorney to act on behalf of others. Id. at 248-50. At least one authorization was broad enough to incorporate entering into an arbitration agreement. Id. at 250. 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. (cleaned up).
On review, the Court reversed the Kentucky Supreme Court, concluding that the clear statement rule is preempted by the
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 254-55. That is not the case at bar.
The majority relies on this passage to conclude that
It is simply not the case, as the majority alleges, that the Supreme Court dramatically expanded the preemptive scope of the
For similar reasons, Casarotto does not support the majority‘s conclusion. Casarotto considered a Montana statute that “declared 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 the statute was preempted by the
My colleagues misconstrue the jurisprudence of the Court. At the end of the last century, mandatory arbitration was utilized to resolve employer-employee disputes for approximately 2% of nonunion employers. See Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Econ. Pol‘y Inst. (Apr. 6, 2018), https://files.epi.org/pdf/144131.pdf. By 2018, that number had grown to approximately 56%. Id. My colleagues’ misinterpretation leaves state legislatures powerless to ensure that arbitration clauses in these employment agreements are freely and openly negotiated. Moreover, courts are potentially left with an increasingly diminished role, or no role at all, in employer-employee disputes. This would effectively freeze the evolution of precedent for employment principles and law, and give employers unmitigated power to mandate the arbitration of all employer-employee disputes as a condition of employment. I cannot join such a sweeping interpretation of the