California’s AB 51 would have prohibited California employers from including arbitration terms in employment agreements beginning January 1, 2020. After years of ongoing litigation, last week the Ninth Circuit ruled AB 51 to be preempted by the Federal Arbitration Act.

In early January of 2020, a California federal district court granted the U.S. Chamber of Commerce’s request for preliminary injunction, halting the enforcement of AB 51. The State of California appealed the decision to the Ninth Circuit.

In September 2021, a Ninth Circuit panel partially upheld and partially blocked AB 51 under an FAA preemption. In response, the U.S. Chamber of Commerce filed for a rehearing by the full court.

Unexpectedly, in August 2022, the Ninth Circuit decided to withdraw its prior 2021 opinion entirely and grant a panel rehearing. This leads to the ruling of the Ninth Circuit released on February 16.

The Ninth Circuit panel ruled that AB 51 is preempted by the FAA. In affirming the initial grant of a preliminary injunction, the panel referred to long-standing Supreme Court precedent that finds rules that burden the formation of arbitration agreements to be in conflict with the legislative intent of, and therefor preempted by, the FAA.

Furthermore, the Ninth Circuit rejected the State of California’s arguments that clauses of AB 51 can be severed, finding that AB 51’s provision all work together to hinder the formation of arbitration agreements and therefore must be enjoined in whole.

The Ninth Circuit ruling does not bode well for the future of AB 51, however the matter must still return to the district court for final determination on the legality of AB 51.