The Ninth Circuit Court of Appeals reversed in part a 2020 preliminary injunction issued by a district court and resurrected California Labor Code Section 432.6, the state’s latest attempt to outlaw arbitration in the employment context. As a result, employers in California once again face the prospect of incurring criminal and civil penalties for requesting that employees and applicants agree to arbitrate future disputes.
In a 2-1 ruling, the Ninth Circuit held that at least part of Section 432.6 is not preempted by the Federal Arbitration Act insofar as it prohibits “pre-agreement employer behavior,” requiring an applicant or employee to enter into an arbitration agreement — but only in those instances in which the employee fails or refuses to execute the agreement. If, however, the employee does sign the arbitration agreement, then the statute does not apply per Section 432.6(f), and the employer is not in violation of the statute or subject to its criminal and civil penalties, which the Ninth Circuit struck down in that limited context. Section 432.6 applies to arbitration agreements that were entered into, modified or extended on or after January 1, 2020.
In a spirited dissent, Judge Sandra Segal Ikuta noted:
[I]f 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” … the employer is safe, but if the employer’s efforts fail, the employer is a criminal.
Judge Ikuta went on to observe that the majority’s “tortuous ruling is analogous to holding that a statute can make it unlawful for a dealer to attempt to sell illegal drugs, but if the dealer succeeds in completing the drug transaction, the dealer cannot be prosecuted.” See also Patterson v. Superior Court, 2021 WL 4843540 (Cal. Ct. App. 2021) (prevailing-party employer in a motion to compel arbitration may recover its attorney’s fees only if employee’s opposition to the motion was groundless). Employment set out in Dynamex Ops. W., Inc. v. Superior Court, 4 Cal. 5th 903 (2018) applies to the case. The Court of Appeal held that the Dynamex ABC test does not apply because it is limited to claims governed by wage order that employ the “suffer or permit to work” standard, which are not at issue in this case.
However, the Court reversed the trial court’s judgment, holding that while the determination of whether the carriers are employees or independent contractors is governed by the common law test of S.G. Borello & Sons, Inc. v. Department of Indus. Relations, 48 Cal. 3d 341 (1989), the trial court failed to properly analyze the factors required by that opinion by, among other things, relying upon inapplicable regulations from the Employment Development Department. See also Lawson v. Grubhub, Inc., 13 Cal. 4th 908 (9th Cir. 2021) (worker who did not sign class action waiver could not represent other similarly-situated workers who did; action remanded for decision of whether ABC test applies to expense reimbursement claims); American Soc. of Journalists & Authors, Inc. v. Bonta, 2021 WL 4568057 (9th Cir. 2021) (Assembly Bill 5 did not effectuate content-based preferences for certain kinds of speech by providing a narrower exemption for freelance writers and photographers).