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The Never Ending Climb- Enforceability of Employment Arbitration Agreements in California.

Since January 1, 2020, California employers and employees have faced confusion about the enforceability of binding arbitration agreements. If you work in the state you have probably seen one. A lengthy document that definitely looks like a lawyer drafted it, defining the employee and employer rights and obligations in the event the employee makes a claim against the employer. The most important take away is the parties to the agreement pretty much waive the right to a jury trial, and further waive rights to participating in multi person actions.

Signing these things used to be done as a matter of course. The employer says here is some paperwork to sign, and wanting to be perceived as the right stuff, the employee happily says yes boss I’ll sign on the dotted line. However, as alluded to above, the right and obligation to even introduce an arbitration agreement to sign has been in a state of flux. Starting January 1, 2020, California employers were generally prohibited from forcing new hires (or lateral hires) to sign a binding arbitration agreement. This prohibition caused a huge disruption in the delicate balance of power, perhaps waning, held by the employers of the state, and thus immediately a challenge to the constitutionality of the law ensued. As such, around February 2020, a federal District Court judge issued an injunction, which stopped implementation of the law, keeping employers happy. Of course, not long after that ruling, an appeal issued, on behalf of the plaintiff’s bar, which stood to lose the greatest through loss of a jury pool, seeking to uphold the law and due away with binding arbitration agreements.

The appeal has been working its way through the court system, and recently, on September 15, 2021, the Ninth Circuit Court of Appeal issued a decision which, surprisingly, unwound the District Court injunction and essentially upheld the legality of the limitations of binding arbitration agreements. I say surprising because the Federal Arbitration Act favors arbitration of disputes, and that Act has been routinely interpreted by the US Supreme Court in the favor of employers. Put another way, arbitration agreements are often upheld as valid by the FAA. So, for a high level court to uphold limitations on arbitration agreements in light of the FAA is surprising, but perhaps not when considering the judicial make up of the Ninth Circuit- often liberal in its Constitutional interpretations.

Based on the above, at this moment, prohibitions against binding arbitration agreements in California are currently in effect. However, it is almost certain the issue will be taken on appeal to the SCOTUS. Once there, it is likely SCOTUS, being a super majority conservative court likely in favor of the FAA and arbitration agreements, will reverse the Ninth Circuit, and binding arbitration agreements will be once again valid in California.

For now, regardless of whether you are an employee or employer, if you want advice on how to proceed, call an experienced labor and employment law attorney.

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