The Ninth Circuit recently held in Chamber of Commerce v. Bonta that the Federal Arbitration Act preempts a California law that criminalizes employer conduct that requires employees to consent to arbitrate claims arising under the California Fair Employment and Housing Act.  This ruling came after the same panel previously held that the law, Assembly Bill 51, was not preempted because it focused on “pre-agreement” behavior and not the arbitration agreement itself.  In 2021, the panel sua sponte decided to rehear the case, apparently after Judge Fletcher (who was in the majority in both decisions) changed his mind on the law’s validity.  In doing so, the panel eliminated a circuit split it had previously created between itself and the First and Fourth Circuits.

Assembly Bill 51 was the result of an attempt by the California Legislature to navigate around Supreme Court precedent on preemption and arbitration.  While the bill prohibited employers from requiring a waiver of the right to file and pursue a civil action, and considered it a misdemeanor to do so, it explicitly stated that the arbitration agreement in such a case would still be enforceable.  By structuring the bill this way, California argued that it was not regulating arbitration agreements themselves but was instead only restricting the conditions under which arbitration agreements can be made.  As the Ninth Circuit observed, this resulted in the “oddity” that an employer could be prosecuted for requiring an arbitration provision yet could nevertheless enforce the same provision.

In its new decision, the Ninth Circuit rejected the Legislature’s attempted distinction.  The panel relied heavily on two Supreme Court cases: Kindred Nursing Centers Ltd. P’ship v. Clark, 581 U.S. 246 (2017) and Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 683 (1996), in concluding that state rules that burden the formation of arbitration agreements are preempted by the FAA even if the resulting arbitration agreement is enforceable.  In this case, the panel held that Assembly Bill 51 ran afoul of the FAA in two ways.  First, by subjecting employers to criminal prosecution, the bill had a “severe” deterrent effect on forming arbitration agreements.  Second, the bill singled out arbitration as an exception to California’s generally applicable law that employment contracts may contain non-negotiable terms, rejecting California’s argument that it only sought to correct for unequal bargaining power.  As a result, the bill ran afoul of the FAA’s liberal federal policy favoring arbitration agreements by evincing hostility to their formation.            

This decision is a significant victory for businesses who prefer the cost-effectiveness of arbitration over the court process.  By clearly stating that the FAA preempts attempts to single out the conditions in which arbitration agreements are made, the Ninth Circuit foreclosed one of a dwindling number of options for states seeking to circumvent the FAA.  The California Attorney General Office announced that it is currently reviewing the decision and assessing next steps, suggesting the possibility of a petition to the en banc court and/or the Supreme Court.

Photo of Sonya Winner Sonya Winner

A litigator with three decades of experience, Sonya Winner handles high-stakes civil cases for clients in a wide range of industries, including banking, pharmaceuticals and professional sports. She has handled numerous antitrust and consumer disputes, many of them class actions, in state and…

A litigator with three decades of experience, Sonya Winner handles high-stakes civil cases for clients in a wide range of industries, including banking, pharmaceuticals and professional sports. She has handled numerous antitrust and consumer disputes, many of them class actions, in state and federal courts across the country.

Sonya’s cases typically involve difficult technical issues and/or complex legal and regulatory schemes. She is regularly able to resolve cases before the trial phase, often through dispositive motions. But when neither summary judgment nor a favorable settlement is an option, she has the confidence of her clients to take the case all the way through trial and on appeal. Her recent successes have included a cutting-edge decision rejecting a “true lender” challenge to National Bank Act preemption in a class action involving interest rates on student loans, as well as the outright dismissal of a putative antitrust claim against the National Football League and its member clubs asserting an unlawful conspiracy to fix cheerleader compensation.

Sonya has been recognized as a leading trial lawyer by publications like Chambers and the Daily Journal. She is chair of the firm’s Class Action Litigation Practice Group.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which…

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which were defeated through dispositive pre-trial motions.
Andrew is co-chair of the firm’s Class Action Litigation practice group.

Andrew has helped his clients achieve successful outcomes at all stages of litigation, including through trial and appeal. He has helped his clients prevail in litigation against putative class representatives, government agencies, and commercial entities. Representative victories include:

  • Delivered wins in multiple nationwide class actions on behalf of large financial companies related to fees, disclosures, and other banking practices, including the successful defense of numerous lenders accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recent recognition as a “Class Action Group Of The Year.”
  • Successfully defending several of the nation’s leading financial institutions in a wide variety of litigation and arbitration proceedings involving alleged violations of RICO, FCRA, TILA, TCPA, FCBA, ECOA, EFTA, FACTA, and state consumer protection and unfair and deceptive acts or practices statutes, as well as claims involving breach of contract, fraud, unjust enrichment, and other torts.
  • Successfully defended several of the nation’s leading companies and brands from claims that they deceptively marketed their products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Obtained favorable outcomes for numerous clients in commercial disputes raising contract, fraud, and other business tort claims.

Because many of Andrew’s clients are subject to extensive federal regulation and oversight, Andrew has significant experience successfully invoking federal preemption to defeat litigation.

Andrew also advises clients on their arbitration agreements. He has successfully helped numerous clients avoid multi-district class-action litigation by successfully enforcing the institutions’ arbitration agreements.

Clients praise Andrew for his personal attention to their matters, his responsiveness, and his creative strategies. Based on his “big wins in his class action practice,” Law360 named Mr. Soukup a “Class Action Rising Star.

Prior to practicing law, Andrew worked as a journalist.

Photo of Samuel Crimmins Samuel Crimmins

Sam Crimmins is an associate in the firm’s Washington D.C. office. He is a member of the Class Actions Practice Group. His practice focuses on complex civil litigation.