Chamber of Commerce of the US v. Rob Bonta ( 2021 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CHAMBER OF COMMERCE OF THE No. 20-15291
UNITED STATES OF AMERICA;
CALIFORNIA CHAMBER OF D.C. No.
COMMERCE; NATIONAL RETAIL 2:19-cv-02456-
FEDERATION; CALIFORNIA KJM-DB
RETAILERS ASSOCIATION; NATIONAL
ASSOCIATION OF SECURITY
COMPANIES; HOME CARE OPINION
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
*
Rob Bonta has been substituted for his predecessor, Xavier
Becerra, as California Attorney General under Fed. R. App. P 43(c)(2).
2 CHAMBER OF COMMERCE V. BONTA
capacity as Director of the California
Department of Fair Employment and
Housing of the State of California,
Defendants-Appellants.
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
San Francisco, California
Filed September 15, 2021
Before: Carlos F. Lucero, ** William A. Fletcher, and
Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Lucero;
Dissent by Judge Ikuta
**
The Honorable Carlos F. Lucero, United States Circuit Judge for
the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
CHAMBER OF COMMERCE V. BONTA 3
SUMMARY ***
Federal Arbitration Act / Preemption
The panel reversed, in part, the district court’s
conclusion that California Assembly Bill 51 is preempted by
the Federal Arbitration Act; affirmed the district court’s
determination that the civil and criminal penalties associated
with AB 51 were preempted; vacated the district court’s
preliminary injunction enjoining AB 51’s enforcement; and
remanded for further proceedings.
AB 51, which added § 432.6 to the California Labor
Code, was enacted with the purpose of ensuring that
individuals are not retaliated against for refusing to consent
to the waiver of rights and procedures established in the
California Fair Employment and Housing Act and the
California Labor Code; and to ensure that any contract
relating to those rights and procedures be entered into as a
matter of voluntary consent, not coercion. Other provisions
of the California Code, specifically Labor Code § 433 and
Government Code § 12953, render violations of § 432.6 a
misdemeanor offense and open an employer to potential civil
sanctions. The district court concluded that AB 51 placed
agreements to arbitrate on unequal footing with other
contracts and also that AB 51 stood as an obstacle to the
purposes and objectives of the Federal Arbitration Act
(“FAA”). The district court preliminarily enjoined
enforcement of § 432.6(a)–(c) as to arbitration agreements
covered by the FAA.
***
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4 CHAMBER OF COMMERCE V. BONTA
The panel held that California Labor Code § 432.6
neither conflicted with the language of § 2 of the FAA nor
created a contract defense by which executed arbitration
agreements could be invalidated or not enforced. A
thorough review of the historical context of the FAA, its
legislative history, and subsequent Supreme Court
jurisprudence demonstrated that Congress was focused on
the enforcement and validity of consensual written
agreements to arbitrate and did not intend to preempt state
laws requiring that agreements to arbitrate be voluntary. The
panel held that § 432.6 did not make invalid or
unenforceable any agreement to arbitrate, even if such
agreement was consummated in violation of the statute.
Rather, the panel noted that while mandating that employer-
employee arbitration agreements be consensual, § 432.6
specifically provides that nothing in the section was intended
to invalidate a written arbitration agreement that was
otherwise enforceable under the FAA. The panel
determined that § 432.6 applied only in the absence of an
agreement to arbitrate and expressly provided for the validity
and enforceability of agreements to arbitrate. The panel held
that because the district court erred in concluding that
§ 432.6(a)–(c) were preempted by the FAA, it necessarily
abused its discretion in granting Appellees a preliminary
injunction.
The panel agreed, however, that the civil and criminal
penalties associated with AB 51 stood as an obstacle to the
purposes of the FAA and were therefore preempted. The
panel held that Section § 432.6 was not preempted by the
FAA because it was solely concerned with pre-agreement
employer behavior, but because the accompanying
enforcement mechanisms sanctioning employers for
violating § 432.6 necessarily included punishing employers
for entering into an agreement to arbitrate. The panel held
CHAMBER OF COMMERCE V. BONTA 5
that a state law that incarcerates an employer for six months
for entering into an arbitration agreement directly conflicts
with § 2 of the FAA. Therefore, the panel held that
Government Code § 12953 and Labor Code § 433 were
preempted to the extent that they applied to executed
arbitration agreements covered by the FAA.
Dissenting, Judge Ikuta stated that AB 51 has a
disproportionate impact on arbitration agreements by
making it a crime for employers to require arbitration
provisions in employment contracts. She stated that the
majority abetted California’s attempt to evade the FAA and
the Supreme Court’s caselaw by upholding this anti-
arbitration law on the pretext that it barred only
nonconsensual agreements. Judge Ikuta stated that the
majority’s ruling conflicted with the Supreme Court’s clear
guidance in Kindred Nursing Centers Ltd. Partnership v.
Clark, 137 S. Ct. 1421, 1425 (2017), which held that the
FAA invalidates state laws that impede the formation of
arbitration agreements. The majority ruling also created a
circuit split with sister circuits, which have held that too-
clever-by-half workarounds and covert efforts to block the
formation of arbitration agreements are preempted by the
FAA just as much as laws that block enforcement of such
agreements.
6 CHAMBER OF COMMERCE V. BONTA
COUNSEL
Chad A. Stegeman (argued), Deputy Attorney General;
Michelle M. Mitchell, Supervising Deputy Attorney;
Thomas S. Patterson, Senior Assistant Attorney General;
Rob Bonta, Attorney General; Office of the Attorney
General, San Francisco, California; for Defendants-
Appellants.
Andrew J. Pincus (argued), Archis A. Parasharami, and
Daniel E. Jones, Mayer Brown LLP, Washington, D.C.;
Bruce J. Sarchet and Maurice Baskin, Littler Mendelson PC,
Sacramento, California; Donald M. Falk, Mayer Brown
LLP, Palo Alto, California; Erika C. Frank, California
Chamber of Commerce, Sacramento, California; Steven P.
Lehotsky and Jonathan Urick, U.S. Chamber Litigation
Center, Washington, D.C.; for Plaintiffs-Appellees.
Cliff Palefsky and Matt Koski, McGuinn Hillsman &
Palefsky, San Francisco, California, for Amicus Curiae
California Employment Lawyers Association.
CHAMBER OF COMMERCE V. BONTA 7
OPINION
LUCERO, Circuit Judge:
The Federal Reporter is awash with descriptions of
“judicial hostility” to arbitration that spurred enactment of
the Federal Arbitration Act (FAA). Evolution of this
“hostility” is traced not to the particular desires of individual
judges but to two doctrines of English common law: ouster
(which made illegal any agreement that lessened a statutory
grant of judicial jurisdiction) and revocability (which
allowed a party to withdraw consent to arbitrate at any point
prior to the arbitrator’s ruling). These two doctrines were
followed for their “antiquity” rather than their “excellence or
reason.” See U.S. Asphalt Ref. Co. v. Trinidad Lake
Petroleum Co., 222 F. 1006, 1007 (S.D.N.Y. 1915). By the
turn of the twentieth century, litigants, lawyers, and judges
all agreed that the two doctrines should be sent hence from
American jurisprudence.
This goal was achieved by enactment of the FAA, which
intended “to make the contracting party live up to his
agreement.” H.R. Rep. No. 68-96, at 1 (1924). Following
enactment of the FAA, parties could “no longer refuse to
perform [their] contract when it [became] disadvantageous,”
ensuring that an arbitration agreement would be “placed
upon the same footing as other contracts, where it belongs.”
Id. In furtherance of this congressional intent, the Court has
repeatedly instructed that “the principal purpose of the FAA
is to ensure that private arbitration agreements are enforced
according to their terms.” AT&T Mobility LLC v.
Concepcion, 563 U.S. 333, 344 (2011) (cleaned up). Just as
clearly, the Court has emphasized: “The first principle that
underscores all of our arbitration decisions is that arbitration
is strictly a matter of consent.” Lamps Plus, Inc. v. Varela,
139 S. Ct. 1407, 1415 (2019) (cleaned up). “[T]he FAA does
8 CHAMBER OF COMMERCE V. BONTA
not require parties to arbitrate when they have not agreed to
do so.” Volt Info. Scis., Inc. v. Bd. of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 478 (1989).
The jurisprudence surrounding the preemptive scope of
the FAA has grown on the precedential trellis of these basic
principles. Each time the Supreme Court has clarified the
preemptive scope of the FAA, it has done so by ruling on the
enforceability or validity of executed agreements to
arbitrate, explaining that the FAA does not preempt the field
of arbitration. Today we are asked to abandon the
framework of FAA preemption of state rules that selectively
invalidate or refuse to enforce arbitration agreements, ignore
the holding of Volt, and nullify a California law enacted to
codify what the enactors of the FAA took as a given: that
arbitration is a matter of contract and agreements to arbitrate
must be voluntary and consensual. As we read California
Labor Code § 432.6, the state of California has chosen to
assure that entry into an arbitration agreement by an
employer and employee is mutually consensual and to
declare that compelling an unwilling party to arbitrate is an
unfair labor practice. We are asked by plaintiffs to hold that
the FAA requires parties to arbitrate when but one party
desires to do so. Our research leads to nothing in the
statutory text of the FAA or Supreme Court precedent that
authorizes or justifies such a departure from established
jurisprudence, and we decline to so rule. Thus, we must
reverse the judgment of the district court.
Yet operation of other provisions within the California
code renders a violation of § 432.6 a misdemeanor offense
and opens an employer to potential civil sanctions. The
imposition of civil and criminal sanctions for the act of
executing an arbitration agreement directly conflicts with the
FAA and such an imposition of sanctions is indeed
CHAMBER OF COMMERCE V. BONTA 9
preempted. We therefore affirm the district court as to the
application of Labor Code § 433 and Government Code
§ 12953 to arbitration agreements covered by § 1 of the
FAA.
I
A
California Governor Gavin Newsom signed into law
California Assembly Bill 51, 2019 Cal. Stats. Ch. 711
(AB 51), on October 10, 2019. 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.” 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, AB 51 covers a range of waivers, including
non-disparagement clauses and non-disclosure agreements.
AB 51 added § 432.6 to the California Labor Code. That
section provides:
(a) 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 (Part 2.8 (commencing with Section
10 CHAMBER OF COMMERCE V. BONTA
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.
(b) 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.
(c) For purposes of this section, an agreement
that requires an employee to opt out of a
waiver or take any affirmative action in order
to preserve their rights is deemed a condition
of employment.
...
(f) Nothing in this section is intended to
invalidate a written arbitration agreement that
is otherwise enforceable under the Federal
Arbitration Act (9 U.S.C. Sec. 1 et seq.).
CHAMBER OF COMMERCE V. BONTA 11
Cal. Lab. Code § 432.6. Its placement in Article 3 of the
Labor Code brings § 432.6 under Labor Code § 433, which
states that “[a]ny person violating this article is guilty of a
misdemeanor.” This, in turn, makes a violation of § 432.6
“punishable by imprisonment in a county jail, not exceeding
six months, or by a fine not exceeding one thousand dollars
($1,000), or both.” Cal. Lab. Code § 23.
Finally, AB 51 also added § 12953 to the California
Government Code. That section provides: “It is an unlawful
employment practice for an employer to violate Section
432.6 of the Labor Code.” Cal. Gov’t Code § 12953. Other
provisions within the Government Code create civil
sanctions for “unlawful employment practices,” including
investigation by the Department of Fair Housing and
Employment and potential civil litigation brought either by
that Department on behalf of an aggrieved individual or, if
the Department declines to initiate litigation, by the
individual in a private suit. See Cal. Gov’t Code §§ 12960–
12965.
B
AB 51 was enacted with an effective date of January 1,
2020. Cal. Lab. Code § 432.6(h). On December 9, 2019,
Appellees filed a complaint for declaratory and injunctive
relief, seeking a declaration that AB 51 was preempted by
the FAA and asking the court to preliminarily and
permanently enjoin Appellants from enforcing the statute.
The same day, Appellees filed a motion for a preliminary
injunction. While the injunction motion was pending,
Appellees filed a motion for a temporary restraining order,
which was granted on December 30, 2019, two days before
AB 51 was to take effect.
12 CHAMBER OF COMMERCE V. BONTA
The trial court conducted a hearing on the motion for a
preliminary injunction on January 10, 2020. It granted
Appellees’ motion for a preliminary injunction via minute
order on January 31, 2020 and issued a detailed decision on
February 7, 2020. After resolving issues of jurisdiction that
are not contested on appeal, 1 the court turned to the merits
of Appellees’ preliminary injunction motion. Concluding
that AB 51 placed agreements to arbitrate on unequal footing
with other contracts and also that it stood as an obstacle to
the purposes and objectives of the FAA, the trial court found
that Appellees were likely to succeed on the merits of their
claim. After determining the other injunction factors also
favored Appellees, the court preliminarily enjoined
Appellants from enforcing § 432.6(a)–(c) as to arbitration
agreements covered by the FAA.
II
“A preliminary injunction is an extraordinary remedy
never awarded as of right.” Winter v. Nat. Res. Def. Council,
Inc., 555 U.S. 7, 24 (2008). “A plaintiff seeking a
preliminary injunction must establish that he is likely to
succeed on the merits, that he is likely to suffer irreparable
harm in the absence of preliminary relief, that the balance of
equities tips in his favor, and that an injunction is in the
public interest.” Id. at 20. “The first factor—likelihood of
success on the merits—is the most important factor.”
California v. Azar, 950 F.3d 1067, 1083 (9th Cir. 2020) (en
1
While the issue is not contested on appeal, we have satisfied
ourselves of the district court’s jurisdiction and our own. See Steel Co.
v. Citizens for a Better Env’t, 523 U.S. 83, 95 (1998). The trial court
correctly determined that it had subject matter jurisdiction under
28 U.S.C. § 1331. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96
n.14 (1983). We, in turn, have jurisdiction to review a grant of a
preliminary injunction under 28 U.S.C. § 1292(a)(1).
CHAMBER OF COMMERCE V. BONTA 13
banc) (quotations omitted). “If a movant fails to establish
likelihood of success on the merits, we need not consider the
other factors.” Id. “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). We review the legal issues underlying the grant de
novo “because a district court would necessarily abuse its
discretion if it based its ruling on an erroneous view of law.”
adidas Am., Inc. v. Skechers USA, Inc., 890 F.3d 747, 753
(9th Cir. 2018) (quotation omitted).
III
A
The Supremacy Clause states:
This Constitution, and the laws of the United
States . . . shall be the supreme law of the
land; and the judges in every state shall be
bound thereby, anything in the Constitution
or laws of any State to the contrary
notwithstanding.
U.S. Const. art. VI, cl. 2. It “provides a rule of decision for
determining whether federal or state law applies in a
particular situation.” Kansas v. Garcia, 140 S. Ct. 791, 801
(2020) (quotation omitted). If Congress “enacts a law that
imposes restrictions or confers rights on private actors” and
“a state law confers rights or imposes restrictions that
conflict with the federal law,” then “the federal law takes
precedence and the state law is preempted.” Murphy v. Nat’l
Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1480 (2018). The
Supreme Court has identified three types of preemption:
“conflict, express, and field.” Id. (quotations omitted). Of
these, only conflict preemption is relevant to the present
14 CHAMBER OF COMMERCE V. BONTA
appeal. Express preemption occurs when Congress passes a
statute that explicitly preempts state law. See Pac. Gas &
Elec. Co. v. State Energy Res. Conservation & Dev.
Comm’n, 461 U.S. 190, 203 (1983). Field preemption
occurs when “Congress has legislated so comprehensively
that it has left no room for supplementary state legislation.”
R.J. Reynolds Tobacco Co. v. Durham County, 479 U.S. 130,
140 (1986). The Supreme Court has explained that neither
express nor field preemption is applicable to the FAA. See
Volt, 489 U.S. at 477 (“The FAA contains no express pre-
emptive provision, nor does it reflect a congressional intent
to occupy the entire field of arbitration.”).
Conflict preemption manifests in two ways:
“impossibility” preemption and “obstacle” preemption.
Impossibility preemption occurs when “it is impossible . . .
to comply with both state and federal requirements” and
obstacle preemption occurs when a “state law stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.” Ryan v. Editions Ltd.
W., Inc., 786 F.3d 754, 761 (9th Cir. 2015) (quotation
omitted).
B
At issue in this appeal is the preemptive scope of
9 U.S.C. § 2, the “primary substantive provision of the
[FAA].” Concepcion, 563 U.S. at 339 (quotation omitted).
It provides:
A written provision in any maritime
transaction or a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising
out of such contract or transaction, or the
refusal to perform the whole or any part
CHAMBER OF COMMERCE V. BONTA 15
thereof, or an agreement in writing to submit
to arbitration an existing controversy arising
out of such a contract, transaction, or refusal,
shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in
equity for the revocation of any contract.
Conflict preemption analysis under the FAA follows the
basic structure outlined above, but the sheer volume of FAA
preemption jurisprudence has created an FAA-specific gloss
to the doctrines of impossibility and obstacle preemption.
To understand how impossibility preemption operates in
FAA cases, a brief discussion of the statute’s “saving clause”
is required. The last clause of § 2 provides that “an
agreement in writing” to arbitrate a dispute “shall be valid,
irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2 (emphasis added). The saving clause “permits
agreements to arbitrate to be invalidated by generally
applicable contract defenses, such as fraud, duress, or
unconscionability, but not by defenses that apply only to
arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.” Blair v. Rent-A-Ctr., Inc.,
928 F.3d 819, 825 (9th Cir. 2019) (quoting Concepcion,
563 U.S. at 339). To fall within the saving clause and avoid
preemption, a rule must “put arbitration agreements on an
equal plane with other contracts.” Kindred Nursing Centers
Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1427 (2017).
It is this “equal plane” or “equal footing” principle that
guides impossibility preemption under the FAA. If a state-
law contract defense treats arbitration agreements less
favorably than any other contract—that is, if the defense
allows for an agreement to arbitrate to be invalidated or not
16 CHAMBER OF COMMERCE V. BONTA
enforced in circumstances where another contract would be
enforced or deemed valid—that contract defense does not
fall within the saving clause. Outside the protective ambit
of the saving clause, a contract defense that provides for the
invalidation or nonenforcement of an arbitration agreement
is in direct conflict with the FAA’s mandate; it is thus
impossible for the contract defense and the FAA to coexist,
and the FAA must prevail. Importantly, the “equal footing
principle” applies the same to a contract defense that
“discriminat[es] on its face against arbitration” as it does to
“any rule that covertly accomplishes the same objective by
disfavoring contracts that (oh so coincidentally) have the
defining features of arbitration agreements.” Id. at 1426.
If a state rule places arbitration agreements on equal
footing with other contracts and thus falls within the saving
clause, it may still be preempted by “the ordinary working
of conflict pre-emption principles,” including obstacle
preemption. Geier v. Am. Honda Motor Co., 529 U.S. 861,
869 (2000). Under obstacle preemption, a state statute or
rule is preempted by the FAA if it “stands as an obstacle to
the accomplishment and execution of the full purposes and
objectives of Congress.” Concepcion, 563 U.S. at 352(quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)). “The
principal purpose of the FAA is to ensure that private
arbitration agreements are enforced according to their
terms.” Id. at 344 (cleaned up). Rules that selectively
interfere with the enforcement of arbitration agreements are
therefore preempted by the FAA. A state rule may also stand
as an obstacle to the FAA through “subtle methods” that
“interfer[e] with fundamental attributes of arbitration.”
Lamps Plus, 139 S. Ct. at 1418 (quoting Epic Sys. Corp. v.
Lewis, 138 S. Ct. 1612, 1622 (2018)).
CHAMBER OF COMMERCE V. BONTA 17
With this understanding of preemption under the FAA,
we turn to the principal question before us: Is § 432.6 of the
California Labor Code preempted by § 2 of the FAA? 2
C
1
Preemption analysis begins with the text of the two
statutes. The FAA and § 432.6 do not conflict because, by
its terms, § 2 of the FAA simply does not apply to § 432.6.
The California law does not create a contract defense that
allows for the invalidation or nonenforcement of an
agreement to arbitrate, nor does it discriminate on its face
against the enforcement of arbitration agreements. Indeed,
the only reference in § 432.6 to executed arbitration
agreements covered by the FAA is a provision that protects
their enforcement. See Cal. Lab. Code § 432.6(f). That
§ 432.6 cannot be used to invalidate, revoke, or fail to
enforce an arbitration agreement removes it from saving
clause jurisprudence. Supreme Court and Ninth Circuit
caselaw uniformly applies saving clause analysis in
instances where a party relies on a contract defense or state
rule to invalidate or not enforce an existing agreement to
arbitrate. See, e.g., Epic Sys. Corp., 138 S. Ct. at 1619–20;
Kindred Nursing, 137 S. Ct. at 1426; Concepcion, 563 U.S.
at 337–38; Preston v. Ferrer, 552 U.S. 346, 349–51, (2008);
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 683–84
(1996); Perry v. Thomas, 482 U.S. 483, 484–86 (1987);
Blair, 928 F.3d at 823–24; Sakkab v. Luxottica Retail N. Am.,
Inc., 803 F.3d 425, 430–33 (9th Cir. 2015). Unlike this line
2
We separately consider the FAA’s preemptive effect on
Government Code § 12953 and Labor Code § 433, which we conclude
do conflict with § 2. See section III.D, infra.
18 CHAMBER OF COMMERCE V. BONTA
of cases, the present appeal does not concern a state rule that
provides a contract defense through which an agreement to
arbitrate may be invalidated. See Concepcion, 563 U.S.
at 339. Nor does it “prohibit[] outright the arbitration of a
particular type of claim.” Id. at 341. Therefore, it is not
“impossible” for § 432.6 and the FAA to coexist. See Ryan,
786 F.3d at 761.
Concluding the contrary, the trial court relied largely on
Kindred Nursing and Casarotto. See Chamber of Com. of
United States v. Becerra, 438 F. Supp. 3d 1078, 1097–98
(E.D. Cal. 2020). It reasoned that by prohibiting an
employer from forcing a prospective or current employee to
“waive any right, forum, or procedure for a violation of any
provision of the California Fair Employment and Housing
Act,” id. at 1087 (quoting Cal. Lab. Code § 432.6), § 432.6
“embod[ied] . . . a legal rule hinging on the primary
characteristic of an arbitration agreement, and placing
arbitration agreements in a class apart from any contract.”
Id. at 1098 (quotations omitted) (citing Kindred Nursing,
137 S. Ct. at 1427; Casarotto, 517 U.S. at 688). This
reasoning would be persuasive if either (1) § 432.6 regulated
the enforcement or validity of arbitration agreements or
(2) Kindred Nursing or Casarotto held that regulation of pre-
agreement conduct was preempted by the FAA. But neither
condition is met.
As discussed, § 432.6 does not make invalid or
unenforceable any agreement to arbitrate, even if such
agreement is consummated in violation of the statute.
Rather, while mandating that employer-employee arbitration
agreements be consensual, it specifically provides that
“[n]othing in this section is intended to invalidate a written
arbitration agreement that is otherwise enforceable under the
Federal Arbitration Act.” Cal. Lab. Code § 432.6(f).
CHAMBER OF COMMERCE V. BONTA 19
Placing a pre-agreement condition on the waiver of “any
right, forum, or procedure” does not undermine the validity
or enforceability of an arbitration agreement—its effects are
aimed entirely at conduct that takes place prior to the
existence of any such agreement. Both Kindred Nursing and
Casarotto analyzed state rules that rendered an executed
agreement to arbitrate invalid or unenforceable. Neither
preempted a rule that regulated pre-agreement behavior.
Kindred Nursing considered the “clear-statement rule”
announced by the Kentucky Supreme Court. 137 S. Ct. at
1426. At issue in that case were two arbitration agreements
executed by individuals who were authorized through
powers of attorney to act on behalf of others. Id. at 1424–
25. At least one authorization was broad enough for it to be
“impossible to say that entering into an arbitration agreement
was not covered.” Id. at 1426 (quotation omitted and
alteration adopted). 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. at 1426 (alteration adopted) (quoting
Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306, 328–
29 (Ky. 2015)). Reversing the Kentucky Supreme Court,
Kindred Nursing explained that Kentucky’s “clear-statement
rule” was preempted by the FAA because it “relied on the
uniqueness of an agreement to arbitrate as its basis,” and
“failed to put arbitration agreements on an equal plane with
other contracts.” Id. at 1426, 1426–27 (cleaned up). In so
holding, the Court rejected an argument that the FAA does
not preempt state rules that govern only the formation of
arbitration agreements:
20 CHAMBER OF COMMERCE V. BONTA
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 1428.
It is this passage that the district court and Appellees
contend controls the outcome of the present appeal. They
focus on the language “what it takes to enter into them” for
the proposition that the FAA preempts regulation of pre-
agreement behavior. See Becerra, 438 F. Supp. 3d at 1096.
However, reading this passage in context, the language was
not intended to break new jurisprudential ground. The Court
itself explained that its conclusion “falls well within the
confines of (and goes no further than) present well-
established law.” 137 S. Ct. at 1429 (quotation and citation
omitted). As in all past cases, the court was concerned with
“rule[s] selectively finding arbitration contracts invalid
because improperly formed.” In other words, the Court only
addressed pre-agreement behavior to the extent it provided
the basis to invalidate already executed contracts. It is
simply not persuasive to argue, as Appellees do, that the
Supreme Court dramatically expanded the preemptive scope
of the FAA in seven words of dicta—especially considering
this dicta is nestled within language that explicitly references
executed arbitration agreements (“the Act cares not only
about the ‘enforce[ment]’ of arbitration agreements, but also
about their initial ‘valid[ity]’” and “[a] rule selectively
CHAMBER OF COMMERCE V. BONTA 21
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 1428). Reading this passage in the broader context of
Kindred Nursing also has the advantage of better according
with the text of the FAA, which mandates that a written
agreement to arbitrate “shall be valid, irrevocable, and
enforceable.” 9 U.S.C. § 2. In contrast, Appellees’ assertion
that Kindred Nursing recognizes FAA preemption for
instances in which there is no agreement to arbitrate at issue
would expand the scope of the FAA far beyond its text.
Appellees’ argument amounts to asserting field preemption,
which stands in direct contradiction to the Court’s holding in
Volt. Volt, 489 U.S. at 477 (“The FAA . . . does [not] reflect
a congressional intent to occupy the entire field of
arbitration.”). Absent binding precedent demanding a
contrary conclusion, we decline to depart from the clear text
of the FAA.
For similar reasons, Casarotto does not support
Appellees’ case. Casarotto considered a Montana statute
that “declare[d] 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 that the Montana statute was preempted by
the FAA, concluding it “directly conflict[ed] with § 2 of the
FAA because the State’s law conditions the enforceability of
arbitration agreements on compliance with a special notice
requirement not applicable to contracts generally.” Id. at
687. Casarotto is an example of straightforward conflict
preemption analysis of a state rule that declared an executed
arbitration agreement invalid. It does not support the
proposition that the FAA preempts state regulation of pre-
22 CHAMBER OF COMMERCE V. BONTA
agreement behavior in the absence of an executed arbitration
agreement.
California Labor Code § 432.6 neither conflicts with the
language of § 2 of the FAA nor creates a contract defense by
which executed arbitration agreements may be invalidated
or not enforced. Under the “impossibility” preemption
framework, § 432.6 is not preempted by the FAA.
2
Even though § 432.6 does not directly conflict with the
FAA, it may still be preempted if it “stands as an obstacle to
the accomplishment and execution of the full purposes and
objectives of Congress.” Hines, 312 U.S. at 67. The first
step in the obstacle preemption analysis is to establish what
precisely were the purposes and objectives of Congress in
enacting the FAA. A thorough review of the historical
context of the FAA, its legislative history, and subsequent
Supreme Court jurisprudence demonstrates that Congress
was focused on the enforcement and validity of consensual
written agreements to arbitrate and did not intend to preempt
state laws requiring that agreements to arbitrate be
voluntary.
Congress passed the FAA “to overrule the judiciary’s
longstanding refusal to enforce agreements to arbitrate.”
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219–20
(1985). Prior to the FAA, “courts considered agreements to
arbitrate unenforceable executory contracts” and breaching
an agreement to arbitrate generally “resulted in nominal
legal damages.” Kristen M. Blankley, Impact Preemption:
A New Theory of Federal Arbitration Act Preemption,
67 Fla. L. Rev. 711, 719 (2015). The refusal to enforce
arbitration agreements stemmed from American adoption of
the English common law doctrines of ouster and
CHAMBER OF COMMERCE V. BONTA 23
revocability. See David Horton, Federal Arbitration Act
Preemption, Purposivism, and State Public Policy, 101 Geo.
L.J. 1217, 1225–26 (2013). The former declared illegal any
agreement that reduced statutory judicial jurisdiction and the
latter allowed a party to withdraw their consent to arbitrate
at any time prior to the arbitrator’s ruling. See id.; see also
Home Ins. Co. of New York v. Morse, 87 U.S. 445, 451
(1874) (“[A]greements in advance to oust the courts of the
jurisdiction conferred by law are illegal and void.”). In the
decades preceding the passage of the FAA, ouster and
revocability had become unloved children of English
common law. See Horton, supra, at 1225–26 (“By the dawn
of the twentieth century, the ouster and revocability
doctrines were condemned by judges, lawyers, and business
groups as anomalous and unjust.” (cleaned up)); see also
Meacham v. Jamestown, F. & C.R. Co., 211 N.Y. 346, 354
(1914) (Cardozo, J., concurring) (“It is true that some judges
have expressed the belief that parties ought to be free to
contract about such matters as they please. In this state the
law has long been settled to the contrary.”).
The context of the FAA’s passage was thus the
widespread opposition to English common law doctrines
that mandated that consensual written arbitration agreements
were invalid and unenforceable. Securing the validity and
enforceability of arbitration agreements was precisely what
Congress intended to achieve through the FAA. The House
Report accompanying its passage declared: “The purpose of
this bill is to make valid and enforcible [sic] agreements for
arbitration contained in contracts involving interstate
commerce or within the jurisdiction [of] admiralty, or which
may be the subject of litigation in the Federal courts.” H.R.
Rep. No. 68-96, at 1 (1924). The Senate Report agreed,
describing the purpose of the statute as “[t]o make valid and
enforceable written provisions or agreements for arbitration
24 CHAMBER OF COMMERCE V. BONTA
of disputes arising out of contracts, maritime transactions, or
commerce among the States or Territories or with foreign
nations.” S. Rep. No. 68-536, at 1 (1924). The House
Report also makes explicit that the FAA was laser-focused
on ensuring that people who agreed to arbitrate a dispute
were held to their word:
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. An arbitration
agreement is placed upon the same footing as
other contracts, where it belongs.
H.R. Rep. No. 68-96, at 1.
In the almost-century since it became law, the Supreme
Court has expounded on the congressional purpose
animating the FAA, explaining that its passage signified “a
congressional declaration of a liberal federal policy favoring
arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary.” Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983). The Court has reiterated this principle time and
again over the years, but each time, without fail, it has noted
that the FAA enshrined the enforceability and validity of
consensual, written agreements to arbitrate disputes. See
Concepcion, 563 U.S. at 344 (“The principal purpose of the
FAA is to ensure that private arbitration agreements are
enforced according to their terms.”) (cleaned up); see also,
e.g., Epic Sys. Corp., 138 S. Ct. at 1621; Am. Exp. Co. v.
Italian Colors Rest., 570 U.S. 228, 233 (2013); Volt,
489 U.S. at 478; Dean Witter Reynolds, 470 U.S. at 219. The
CHAMBER OF COMMERCE V. BONTA 25
statute, legislative history, and caselaw thus all agree that the
purpose of the FAA is to ensure that written, consensual
agreements to arbitrate disputes are valid and enforceable as
a matter of contract.
In light of Congress’ clear purpose to ensure the validity
and enforcement of consensual arbitration agreements
according to their terms, it is difficult to see how § 432.6,
which in no way affects the validity and enforceability of
such agreements, could stand as an obstacle to the FAA.
Irrespective of AB 51’s enforcement mechanisms, an
employee may attempt to void an arbitration agreement that
he was compelled to enter as a condition of employment on
the basis that it was not voluntary. If a court were to find
that such a lack of voluntariness is a generally applicable
contract defense that does not specifically target agreements
to arbitrate, the arbitration agreement may be voided in
accordance with saving clause jurisprudence. This specific
question is not before us, and we do not answer it.
The district court focused its obstacle preemption
analysis on the potential civil and criminal liability AB 51
imposes on employers who include a compulsory arbitration
clause as a condition of employment. See Becerra, 438 F.
Supp. 3d at 1099–1100. Appellees dedicate a substantial
portion of their brief to the same concern. As explained
more fully below, we agree that the civil and criminal
penalties associated with AB 51 stand as an obstacle to the
purposes of the FAA and are therefore preempted. Outside
of their concerns over potential civil and criminal liability,
Appellees’ sole remaining argument for obstacle preemption
is that § 432.6 interferes with their “federally protected right
to enter into arbitration agreements with their workers.” Of
course, nothing in § 2 grants an employer the right to force
arbitration agreements on unwilling employees. The only
26 CHAMBER OF COMMERCE V. BONTA
“federally protected right” conferred by the FAA is the right
to have consensual agreements to arbitrate enforced
according to their terms. Because nothing in § 432.6
interferes with this right, it does not stand as an obstacle to
the purposes and objectives of the FAA.
D
The dissent expounds on the expansive nature of FAA
preemption and details the perceived invidious intent of the
California Legislature. 3 Yet for all its colorful language, it
does not meaningfully engage with the question at the core
of this case: Does the text of the FAA or the precedent
interpreting it expand the preemptive scope of the statute to
situations in which there is no agreement to arbitrate at
issue? As explained above, the answer to this question is
“no.” That answer undergirds our resolution of this case and
undermines the entirety of the dissent’s argument.
Attempting to escape the conclusion that this case falls
outside of existing precedent 4 delineating the preemptive
scope of the FAA, the dissent asserts that we “misread[] the
clear import” of Kindred Nursing, which it claims
“confirmed the rule that the FAA invalidates state laws that
3
Contrary to the dissent’s implications, it is unremarkable that the
California Legislature would be cognizant of relevant federal law and
make efforts to draft a statute that avoided preemption. Indeed, one
could argue that writing and passing laws that are not preempted is a core
duty of a state legislature.
4
Our dissenting colleague asserts that “we don’t need to wait until
the next Supreme Court reversal” to hold that AB 51 is preempted by the
FAA. To the contrary, basic principles of federalism caution us against
expanding the preemptive scope of a federal statute absent explicit
instruction from the high court.
CHAMBER OF COMMERCE V. BONTA 27
impede the formation of arbitration agreements.” A review
of the cited portion of Kindred Nursing reveals no such
broad holding. Rather, the Supreme Court is explicit that the
FAA preempts a state rule that “selectively find[s]
arbitration contracts invalid because improperly formed.”
Kindred Nursing, 137 S. Ct. at 1428. It was not
happenstance, as the dissent asserts, that Kindred Nursing
evaluated a state rule that declared invalid certain executed
arbitration agreements. Instead, the existence of an
agreement to arbitrate was crucial to its holding. It was the
very fact that the Kentucky rule invalidated an executed
agreement to arbitrate that ran afoul of the FAA’s mandate
that “an arbitration agreement . . . be treated as ‘valid,
irrevocable, and enforceable.’” Id. (quoting 9 U.S.C. § 2).
The dissent is correct to explain that Kindred Nursing
emphasized that the FAA preempts rules affecting the initial
validity of arbitration agreements, but that is not at issue in
this case. As explained above, we are presented with a state
rule that applies only in the absence of an agreement to
arbitrate and that expressly provides for the validity and
enforceability of agreements to arbitrate. The text of the
FAA does not preempt such a rule, and, despite the dissent’s
attempt to shoehorn its argument into the holding of Kindred
Nursing, nor does the governing caselaw.
E
The regulation of pre-agreement employer behavior in
§ 432.6 does not run afoul of the FAA, but the civil and
criminal sanctions attached to a violation of that section do.
They stand as an obstacle to the “liberal federal policy
favoring arbitration agreements,” Moses H. Cone Mem’l
Hosp., 460 U.S. at 24, and are therefore preempted by the
FAA.
28 CHAMBER OF COMMERCE V. BONTA
As mentioned, § 433 of the California Labor Code makes
any violation of that article, including § 432.6, a
misdemeanor offense. Labor Code § 23 makes any
misdemeanor within the Labor Code “punishable by
imprisonment in a county jail, not exceeding six months, or
by a fine not exceeding one thousand dollars ($1,000), or
both.” Cal. Lab. Code § 23. Additionally, AB 51 added
§ 12953 to the California Government Code, which makes a
violation of Labor Code § 432.6 “an unlawful employment
practice.” This, in turn, subjects an individual or entity who
violates § 432.6 to civil sanctions including state
investigation and private litigation. See Cal. Gov’t Code
§§ 12960–12965.
Regulation of pre-agreement conduct in § 432.6 differs
significantly from these enforcement mechanisms. Section
§ 432.6 is not preempted by the FAA because it is solely
concerned with pre-agreement employer behavior, but the
accompanying enforcement mechanisms that sanction
employers for violating § 432.6 necessarily include
punishing employers for entering into an agreement to
arbitrate. 5 A state law that incarcerates an employer for six
months for entering into an arbitration agreement “directly
conflicts with § 2 of the FAA.” Casarotto, 517 U.S. at 687.
An arbitration agreement cannot simultaneously be “valid”
under federal law and grounds for a criminal conviction
under state law. The potential civil sanctions provided by
Government Code § 12953 are also preempted. We
5
Section 432.6(a) forbids employers from requiring an arbitration
agreement as a condition of employment regardless of whether an
arbitration agreement is executed. Similarly, an employer violates
§ 432.6(b) by threatening to retaliate against an employee for refusing to
sign an arbitration agreement, even if the employee subsequently agrees
to sign.
CHAMBER OF COMMERCE V. BONTA 29
conclude that, much like a state may not “prohibit[] outright
the arbitration of a particular type of claim,” Kindred
Nursing, 137 S. Ct. at 1426 (quotation omitted), it also may
not impose civil or criminal sanctions on individuals or
entities for the act of executing an arbitration agreement.
Therefore, we hold that Government Code § 12953 and
Labor Code § 433 are preempted to the extent that they apply
to executed arbitration agreements covered by the FAA. 6
IV
Appellees have not established that they are likely to
succeed on the merits of their complaint for declaratory and
injunctive relief, and, therefore, “we need not consider the
other [preliminary injunction] factors.” Azar, 950 F.3d at
1083. Because the district court erred in concluding that
§ 432.6(a)–(c) were preempted by the FAA it “necessarily
abuse[d] its discretion” in granting Appellees a preliminary
injunction. adidas Am., 890 F.3d at 753 (quotation omitted).
Accordingly, the preliminary injunction is vacated, and the
case is remanded for further proceedings consistent with this
opinion.
6
Appellees assert that enjoining application of § 433 to agreements
covered by the FAA would amount to a “judicial rewrite of [California’s]
statutory scheme.” Not so. It is well settled that “when confronting a
constitutional flaw in a statute, we try to limit the solution to the
problem” by “for example, . . . enjoin[ing] only the unconstitutional
applications of a statute while leaving other applications in force . . . .”
Ayotte v. Planned Parenthood of N. New England, 546 U.S. 320, 328–
29 (2006); see also Volt, 489 U.S. at 477 (a state law that violates the
FAA is “pre-empted to the extent that it actually conflicts with federal
law—that is, to the extent that it stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress” (quotation omitted)).
30 CHAMBER OF COMMERCE V. BONTA
V
We REVERSE IN PART the trial court’s conclusion
that AB 51 is preempted by the FAA, VACATE the
preliminary injunction, and REMAND for further
proceedings consistent with this opinion. The parties shall
bear their own costs on appeal.
IKUTA, Circuit Judge, dissenting:
Like a classic clown bop bag, no matter how many times
California is smacked down for violating the Federal
Arbitration Act (FAA), the state bounces back with even
more creative methods to sidestep the FAA. This time,
California has enacted AB 51, which has a disproportionate
impact on arbitration agreements by making it a crime for
employers to require arbitration provisions in employment
contracts. Cal. Lab. Code §§ 432.6(a)–(c), 433; Cal. Gov’t
Code § 12953. And today the majority abets California’s
attempt to evade the FAA and the Supreme Court’s caselaw
by upholding this anti-arbitration law on the pretext that it
bars only nonconsensual agreements. The majority’s ruling
conflicts with the Supreme Court’s clear guidance in
Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.
Ct. 1421, 1428–29 (2017), and creates a circuit split with the
First and Fourth Circuits. Because AB 51 is a blatant attack
on arbitration agreements, contrary to both the FAA and
longstanding Supreme Court precedent, I dissent.
I
By its terms, the FAA ensures that an arbitration
agreement “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the
CHAMBER OF COMMERCE V. BONTA 31
revocation of any contract.” 9 U.S.C. § 2. The FAA
preempts any state law that stands “as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52,
67 (1941). The Supreme Court has long recognized the
FAA’s broad purpose: it declares “a liberal federal policy
favoring arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary,” Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983), and embodies a “national policy favoring
arbitration,” AT&T Mobility LLC v. Concepcion, 563 U.S.
333, 346 (2011) (quoting Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 443 (2006)). When faced with a
principle of “state law, whether of legislative or judicial
origin,” that burdens arbitration and that “takes its meaning
precisely from the fact that a contract to arbitrate is at issue,”
we must strike it down as preempted by the FAA. Perry v.
Thomas, 482 U.S. 483, 492 n. 9 (1987). And even when a
state law generally applies to a range of agreements, the
FAA preempts the law if it “interferes with fundamental
attributes of arbitration” and obstructs the purpose of the
FAA. Concepcion, 563 U.S. at 344. As the Supreme Court
has explained, “[a]lthough § 2’s saving clause preserves
generally applicable contract defenses, nothing in it suggests
an intent to preserve state-law rules that stand as an obstacle
to the accomplishment of the FAA’s objectives.” Id. at 343.
AB 51 is just such a state law that obstructs the purpose
of the FAA. The history of AB 51 reveals it was the
culmination of a many-year effort by the California
legislature to prevent employers from requiring an
arbitration provision as a condition of employment.
California has long known that the FAA preempted laws that
made arbitration agreements unenforceable, because the
32 CHAMBER OF COMMERCE V. BONTA
Supreme Court has so often struck down its anti-arbitration
legislation or judge-made rules. 1
In light of these rulings, the California legislature took a
different approach to anti-arbitration legislation. In 2015, it
passed Assembly Bill 465, which banned employers from
requiring arbitration agreements as a condition of
employment and rendered unenforceable any offending
contract. Text of AB 465, 2015–16 Cal. Leg., Reg. Sess.
(2015). 2 California Governor Jerry Brown vetoed this bill
on the ground that such a “blanket ban” had been
“consistently struck down in other states as violating the
Federal Arbitration Act” and noted that the California
Supreme Court and United States Supreme Court had
invalidated similar legislation. Governor’s Veto Message
for AB 465, 2015–16 Cal. Leg., Reg. Sess. (2015); see, e.g.,
Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530, 530–
31 (2012) (per curiam); Perry, 482 U.S. at 484, 489;
Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). That
same year, the Supreme Court overruled a California court’s
interpretation of an arbitration agreement, because it did not
place arbitration contracts “on equal footing with all other
1
See, e.g., Concepcion, 563 U.S. at 352 (holding that the FAA
preempted the California rule that contract provisions disallowing
classwide arbitration are unconscionable); Preston v. Ferrer, 552 U.S.
346, 349–50 (2008) (holding that the FAA preempted a California law
giving a state agency primary jurisdiction over a dispute involving the
California Talent Agency Act despite the parties’ agreement to arbitrate
such disputes); Perry, 482 U.S. at 484, 489 (holding that the FAA
preempted a state statute permitting litigation of wage collection actions
despite the existence of any private agreement to arbitrate).
2
The relevant legislative history referenced here is publicly
available on the California Legislative Information website:
https://leginfo.legislature.ca.gov/.
CHAMBER OF COMMERCE V. BONTA 33
contracts.” DIRECTV, Inc. v. Imburgia, 577 U.S. 47, 58–59
(2015) (quoting Buckeye, 546 U.S. at 443). This decision
was followed by yet another defeat of state anti-arbitration
legislation when a California court held that the FAA
preempted another California statute, which had made
agreements to arbitrate certain state civil rights claims
unenforceable. See Saheli v. White Mem’l Med. Ctr., 21 Cal.
App. 5th 308, 323 (2018).
Undeterred, the state legislature tried again in 2018 and
passed AB 3080, which prohibited an employer from
requiring an employee to waive a judicial forum as a
condition of employment. Text of AB 3080, 2017–18 Cal.
Leg., Reg. Sess. (2018). Governor Brown exercised his veto
power again, explaining that AB 3080 “plainly violates
federal law.” Governor’s Veto Message for AB 3080, 2017–
18 Cal. Leg., Reg. Sess. (2018). Governor Brown cited the
“clear” direction from the United States Supreme Court in
Imburgia, 136 S. Ct. at 468, and Kindred Nursing, 137 S. Ct.
at 1428.
Twice-vetoed but still undeterred, the California
Assembly introduced AB 51 in December 2018. This bill,
now before us, took the same approach as the vetoed AB
3080: instead of barring enforcement of arbitration
agreements offered as a condition of employment, it instead
penalized the formation or attempted formation of such
agreements. Text of AB 51, 2019–20 Cal. Leg., Reg. Sess.
(2019); see also Cal. Lab. Code §§ 432.6(a)–(c), 433. While
it prohibited an employer from requiring an applicant for
employment to enter an arbitration agreement, it provided
that an executed arbitration agreement was nevertheless
enforceable. See Cal. Lab. Code § 432.6(a)–(b), (f).
Accompanying legislative reports reveal the purpose of
AB 51 and explain the oddity of penalizing the formation of
34 CHAMBER OF COMMERCE V. BONTA
arbitration agreements while permitting their enforcement.
The California Senate Judiciary Committee report on AB 51
recognized that “there is little doubt that, if enacted, the bill
would be challenged in court and there is some chance,
under the current composition of the U.S. Supreme Court,
that it would be found preempted.” Senate Judiciary
Committee Report at 7, 2019–20 Cal. Leg., Reg. Sess.
(2019). These reports acknowledge candidly that, in light of
such anticipated scrutiny, “AB 51 seeks to sidestep the
preemption issue.” Senate Labor, Public Employment and
Retirement Committee Report at 4, 2019–20 Cal. Leg., Reg.
Sess. (2019). The reports assured legislators 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.” Senate Judiciary Committee
Report at 8; Assembly Labor and Employment Committee
Report at 3, 2019–20 Cal. Leg., Reg. Sess. (2019). AB 51’s
author noted that this contrivance gave the legislature “a
reasoned case” that the bill would not be preempted, given
that “[t]here has not been a preemption case in the absence
of an arbitration agreement.” Senate Judiciary Committee
Report at 7; Assembly Labor and Employment Committee
Report at 3. Another key component of the “reasoned case”
for avoiding preemption, according to the legislators, was
that AB 51 prevented “forced arbitration,” which was not the
“result of mutual consent” but was imposed on employees
“against their will.” Assembly Judiciary Committee Report
at 5, 2019–20 Cal. Leg., Reg. Sess. (2019); Senate Judiciary
Committee Report at 4. According to the legislators, this
rationale was consistent with Supreme Court cases stressing
the fundamental rule that arbitration agreements be
consensual. Senate Judiciary Committee Report at 8 (citing
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662,
681 (2010)).
CHAMBER OF COMMERCE V. BONTA 35
California’s new governor, Gavin Newsom, signed the
bill into law, even though AB 51 was identical in many
respects to vetoed AB 3080. See id. at 9.
II
A
As this history suggests, the California legislature
developed AB 51 with the focused intent of opposing
arbitration and sidestepping the FAA’s preemptive sweep by
penalizing the formation, or attempted formation, of
disfavored arbitration agreements but not interfering with
the enforcement of such agreements.
Specifically, under Section 432.6 of the California Labor
Code, an employer “shall not, as a condition of employment
. . . require any applicant for employment or any employee
to waive any right, forum, or procedure for a violation of the
California Fair Employment and Housing Act [(FEHA)]” or
the California Labor Code, “including the right to file and
pursue a civil action or a complaint with . . . any court.” Cal.
Lab. Code § 432.6(a). Thus, employers may not require
employees to sign a standard employment contract that
includes an arbitration provision, even if the contract
includes a voluntary opt-out clause. See Cal. Lab. Code
§ 432.6(c). Moreover, an employer cannot refuse to hire a
prospective employee who declines to enter into an
arbitration agreement or otherwise “threaten, retaliate or
discriminate against” such an employee. Cal. Lab. Code
§ 432.6(b). Violating Section 432.6 amounts to an
“unlawful employment practice” for which aggrieved
employees and the state may bring civil suits against
employers. See Cal. Gov’t Code §§ 12953, 12960.
Violating Section 432.6 also constitutes a criminal offense.
See Cal. Lab. Code § 433. Should the employee sign such
36 CHAMBER OF COMMERCE V. BONTA
an employment contract, however, the arbitration agreement
it contains is perfectly enforceable because Section 432.6(f)
provides that “[n]othing in this section is intended to
invalidate a written arbitration agreement that is otherwise
enforceable under the Federal Arbitration Act.” Cal. Lab.
Code § 432.6(f).
In short, AB 51 criminalizes offering employees an
agreement to arbitrate, even though the arbitration provision
itself is lawful and enforceable once the agreement is
executed. The question is, does this too-clever-by-half
workaround actually escape preemption? The majority says
it does, but this is clearly wrong: under Supreme Court
precedent, Section 432.6 is entirely preempted by the FAA.
B
Although the Supreme Court has not addressed
California’s specific legislative gimmick—criminalizing
contract formation if it includes an arbitration provision—
this is not surprising, given that California designed the
gimmick to sidestep any existing Supreme Court precedents.
But even so, the Supreme Court has made it clear that the
FAA preempts this type of workaround, which is but the
latest of the “great variety of devices and formulas”
disfavoring arbitration. See Concepcion, 563 U.S. at 342(cleaned up).
As a threshold matter, California’s circumvention
exemplifies the exact sort of “‘hostility to arbitration’ that
led Congress to enact the FAA.” Kindred Nursing, 137 S.
Ct. at 1428 (quoting Concepcion, 563 U.S. at 339); see also
Buckeye, 546 U.S. at 443. The Supreme Court has made
clear that the FAA displaces not only state laws that
discriminate on their face against arbitration, but also those
that “covertly accomplish[] the same objective,” Kindred
CHAMBER OF COMMERCE V. BONTA 37
Nursing, 137 S. Ct. at 1426. Indeed, even if state laws are
“generally applicable,” the FAA preempts them where “in
practice they have a ‘disproportionate impact’ on
arbitration.” Mortensen v. Bresnan Commc’ns, LLC, 722
F.3d 1151, 1159 (9th Cir. 2013) (quoting Concepcion, 563
U.S. at 341–342). AB 51 is the poster child for covertly
discriminating against arbitration agreements and enacting a
scheme that disproportionately burdens arbitration.
More specifically, Supreme Court precedent makes clear
that the FAA preempts laws like AB 51 that burden the
formation of arbitration agreements. Long ago, the Supreme
Court held that the FAA preempted a Montana law making
an arbitration clause unenforceable unless it had a specific
type of notification on the first page of the contract. See
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996). In
Casarotto, the state supreme court reasoned—much like
California here—that this notice requirement did not
“undermine the goals and policies of the FAA” because the
“notice requirement did not preclude arbitration agreements
altogether” but instead ensured that arbitration agreements
had to be entered “knowingly.” Id. at 685 (quoting
Casarotto v. Lombardi, 268 Mont. 369, 381 (1994)). The
Court rejected this reasoning. Id. at 688.
Kindred Nursing has now confirmed the rule that the
FAA invalidates state laws that impede the formation of
arbitration agreements. In Kindred Nursing, the Court struck
down the Kentucky Supreme Court’s “clear-statement rule”
which provided that a person holding a power of attorney for
a family member could not enter into an arbitration
agreement for that family member, unless the power of
attorney gave the person express authority to do so. 137 S.
Ct. at 1425–26. The Supreme Court held that this clear-
statement rule—which imposed a burden only on contract
38 CHAMBER OF COMMERCE V. BONTA
formation—violated the FAA, because it “singles out
arbitration agreements for disfavored treatment.” Id.
at 1425.
The majority attempts to distinguish Kindred Nursing on
the ground that it addresses “pre-agreement behavior to the
extent it provided the basis to invalidate already executed
contracts.” Majority at 20. This misreads the clear import
of the case. In Kindred Nursing, the parties opposing
arbitration, like the majority here, advanced an argument
“based on the distinction between contract formation and
contract enforcement.” 137 S. Ct. at 1428. According to
their argument, Kentucky’s clear-statement rule “affects
only contract-formation, because it bars agents without
explicit authority from entering into arbitration agreements.”
Id. The opponents argued (like the majority here) that “the
FAA has no application to contract formation issues” and
claimed that the “FAA’s statutory framework applies only
after a court has determined that a valid arbitration
agreement was formed.” Id. (cleaned up). Although the
opponents acknowledged that the FAA “requires a State to
enforce all arbitration agreements (save on generally
applicable grounds) once they have come into being,” they
claimed (like the majority here) that “States have free rein to
decide—irrespective of the FAA’s equal-footing principle—
whether such contracts are validly created in the first
instance.” Id.
The Court expressly rejected these arguments. Id. “By
its terms,” the Court explained, the FAA “cares not only
about the enforcement of arbitration agreements, but also
about their initial validity—that is, about what it takes to
enter into them.” Id. (cleaned up). Because the Kentucky
rule “specially impeded the ability of attorneys-in-fact to
enter into arbitration agreements” and “thus flouted the
CHAMBER OF COMMERCE V. BONTA 39
FAA’s command to place those agreements on an equal
footing with all other contracts,” the FAA preempted
Kentucky’s rule. Id. at 1429. This common-sense
conclusion that state law cannot impede parties’ abilities to
enter arbitration agreements fit “well within the confines of
(and goes no further than) present well-established law.” Id.
(quoting Imburgia, 577 U.S. at 58). To hold otherwise, the
Court explained, would render the FAA “helpless to prevent
even the most blatant discrimination against arbitration.” Id.
In reaching this conclusion, the Court put no weight on the
fact that the arbitration agreement at issue in Kindred
Nursing had already been executed. 3 Rather, Kindred
Nursing’s bottom line is that a state cannot single out
arbitration agreements by imposing special limiting rules at
the formation stage. Id at 1428–29.
Kindred Nursing’s holding that the FAA preempts rules
that burden the formation of an arbitration agreement, see
137 S. Ct. at 1428–29, applies equally to AB 51, which is
intentionally designed to burden and penalize an employer’s
formation, or attempted formation, of an arbitration
agreement with employees. See Cal. Lab. Code § 432.6(a)–
(c); see also Cal. Lab. Code § 433; Cal. Gov’t Code § 12953.
In upholding AB 51, which “specially impede[s] the ability
of [employers] to enter into arbitration agreements” and
3
The majority’s argument that “the existence of an agreement to
arbitrate was crucial” to Kindred Nursing, Majority at 27, is baseless;
instead, the Supreme Court focused on the FAA’s applicability to
contract formation, including state rules that barred specified individuals
from entering into arbitration agreements. See, e.g., 137 S. Ct. at 1428–
29 (noting that if the FAA did not apply to rules impeding contract
formation, a state would be free to hold that everyone was incompetent
to enter into an arbitration agreement, which would render the FAA
meaningless). AB 51 is such a rule impeding contract formation, as it
criminalizes employers’ attempts to enter into an arbitration agreement.
40 CHAMBER OF COMMERCE V. BONTA
“thus flout[s] the FAA’s command to place those agreements
on an equal footing with all other contracts,” Kindred
Nursing, 137 S. Ct. at 1429, the majority directly conflicts
with the rule stated in Kindred Nursing.
In addition to conflicting with Kindred Nursing, the
majority’s ruling today creates a split with two of our sister
circuits. Long before Kindred Nursing reached its common-
sense conclusion, our sister circuits prevented state efforts
like California’s that attempted to sidestep the FAA while
disfavoring arbitration. The First Circuit held that the FAA
preempted Massachusetts regulations that prohibited
securities firms from requiring clients to agree to arbitration
“as a nonnegotiable condition precedent to account
relationships.” Sec. Indus. Ass’n v. Connolly, 883 F.2d 1114,
1117, 1125 (1st Cir. 1989). Even if this regulation did not
invalidate the arbitration agreements themselves, the First
Circuit rejected as “too clever by half” the state’s attempt to
regulate parties’ conduct instead of the parties’ agreements.
Id. at 1122–23. 4 Applying well-established preemption
principles, Connolly reasoned that “[s]tate law need not
clash head on with a federal enactment in order to be
preempted.” Id. Connolly explained that the threatened loss
of a business license for offering clients a standard
agreement including an arbitration provision was “an
obstacle of greater proportions even than the chance that, in
4
This held true even though the regulations would lead to
enforcement even in the absence of any executed arbitration agreement.
The regulations proscribed “[r]equiring . . . that a customer . . . execute”
a non-negotiable arbitration provision, prohibited “[r]equesting . . . that
a customer . . . execute” an arbitration provision without disclosing that
it cannot be non-negotiable, and even prohibited “[r]equesting . . . that a
customer . . . execute” an arbitration provision without disclosing its
effect. Connolly, 883 F.2d at 1125 (quoting 950 Mass. Code Regs.
§ 12.204(G)(1)(a)–(c) (1988)).
CHAMBER OF COMMERCE V. BONTA 41
a given dispute, an arbitration agreement might be declared
void.” Id. at 1124. Thus, the regulations were preempted as
“at odds with the policy which infuses the FAA.” Id.
The Fourth Circuit similarly held that the FAA
preempted a Virginia law that made it unlawful for
automobile manufacturers and distributors to fail to include
a particular clause in franchise agreements. Saturn Distrib.
Corp. v. Williams, 905 F.2d 719, 724 (4th Cir. 1990). That
clause would provide that any contract provision that “denies
access to the procedures, forums, or remedies” provided by
state law “shall be deemed to be modified to conform to such
laws or regulations.” Id. (quoting Va. Code Ann. § 46.1-
550.5:27). As interpreted by the court, the statute forbade
“only nonnegotiable arbitration provisions and not
negotiable arbitration agreements.” Id. Analogizing to
Connolly, the Fourth Circuit held that the statute conflicted
with the FAA because it “essentially prohibited
nonnegotiable arbitration agreements.” Id.AB 51’s contrived approach closely tracks the
impermissible workarounds disapproved of by the First and
Fourth Circuits. See Connolly, 883 F.2d at 1122; Saturn,
905 F.2d at 724. Without even acknowledging the existence
of this conflicting authority, and contrary to our rule that we
may not create a direct conflict with other circuits “[a]bsent
a strong reason to do so,” see United States v. Cuevas-Lopez,
934 F.3d 1056, 1067 (9th Cir. 2019) (quoting United States
v. Chavez-Vernaza, 844 F.2d 1368, 1374 (9th Cir. 1987)),
the majority silently creates a circuit split that will require en
banc review or Supreme Court intervention to resolve, see
42 CHAMBER OF COMMERCE V. BONTA
Hart v. Massanari, 266 F.3d 1155, 1169, 1171 (9th Cir.
2001); see also Fed. R. App. P. 35(b)(1)(A)–(B). 5
Taking into account these precedents and the broad
preemptive scope of the FAA, it is clear that the FAA
preempts AB 51, which prohibits employers from entering
into arbitration agreements with their employees as a
condition of employment. Under Kindred Nursing, such a
rule is invalid, 137 S. Ct. at 1428–29, and AB 51 “stands as
an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress,” Concepcion, 563 U.S.
at 352 (quoting Hines, 312 U.S. at 67).
III
The contrary arguments raised by California and the
majority are not persuasive.
A
First, California and the majority claim that AB 51 does
not pose an obstacle to the FAA because it is simply a
prohibition against so-called “forced arbitration.” Under this
theory, AB 51 seeks to protect employees from involuntary
contracts forced upon them by employers. According to the
majority, California enacted AB 51 “to assure that entry into
an arbitration agreement by an employer and employee is
mutually consensual and to declare that compelling an
5
Although the majority claims the dissent “does not meaningfully
engage” with the core question whether the preemptive scope of the FAA
extends “to situations in which there is no agreement to arbitrate at
issue,” Majority at 26, it is the majority that dodges this core question by
ignoring our sister circuits’ rulings that the FAA does indeed preempt
state laws that impede parties from freely entering into arbitration
agreements.
CHAMBER OF COMMERCE V. BONTA 43
unwilling party to arbitrate is an unfair labor practice.”
Majority at 8. These guardrails protecting employees from
unwanted arbitration provisions do not interfere with the
FAA, the majority reasons, because nothing in 9 U.S.C. § 2“grants an employer the right to force arbitration agreements
on unwilling employees.” Majority at 25. The majority’s
reasoning parrots the assurances offered by California
legislators that AB 51 is consistent with the Supreme Court’s
instruction that “consent is the touchstone of arbitration
agreements” and that AB 51 merely ensures “employees
may choose to waive their rights in order to get or keep a job,
but they are never forced to.” Senate Judiciary Committee
Report at 8.
There is no merit to this argument, which
misunderstands basic principles of California contract law,
Supreme Court caselaw regarding consent in arbitration
cases, and AB 51 itself. Contrary to the majority, a contract
may be “consensual,” as that term is used in contract law,
even if one party accepts unfavorable terms due to 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., Cal. Civ. Code §§ 1565, 1567; Monster Energy Co. v.
Schechter, 7 Cal. 5th 781, 789 (2019); Morrill v.
Nightingale, 93 Cal. 452, 455 (1892). It has long been
established that parties to a contract are generally deemed to
have consented to all the terms of a contract they sign, even
if they have not read it. See, e.g., Marin Storage & Trucking
Inc. v. Benco Contracting & Eng’g, Inc., 89 Cal. App. 4th
1042, 1049 (2001); Greve v. Taft Realty Co., 101 Cal. App.
343, 351–52 (1929). This is true even if the contract at issue
is an adhesion contract, defined by California courts as “a
standardized contract, which, imposed and drafted by the
44 CHAMBER OF COMMERCE V. BONTA
party of superior bargaining strength, relegates to the
subscribing party only the opportunity to adhere to the
contract or reject it,” Neal v. State Farm Ins. Cos., 188 Cal.
App. 2d 690, 694 (1961). Despite unequal bargaining
power, “a contract of adhesion is fully enforceable according
to its terms unless certain other factors are present,” such as
when a provision “does not fall within the reasonable
expectations of the weaker or ‘adhering’ party” or when a
provision “is unduly oppressive or unconscionable.”
Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 819–20 (1981)
(per curiam) (cleaned up). And although adhesion contracts
do not fit the “classical model of ‘free’ contracting by parties
of equal or near-equal bargaining strength,” they are an
“inevitable fact of life for all citizens.” Id. at 817–818.
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
applicable contract rules. OTO, L.L.C. v. Kho, 8 Cal. 5th
111, 125–26 (2019). Unequal bargaining power, “economic
pressure,” “sharp practices,” and “surprise” can help
establish procedural unconscionability. Id. at 126–29
(cleaned up). Moreover, if a party is forced to sign a contract
by threats or physical coercion, for instance, the contract
would lack mutual consent and be unenforceable “upon such
grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. Therefore, there is no risk of
employers forcing arbitration agreements on unwilling
employees, as those terms are understood in California
contract law. Majority at 8, 25. AB 51 does nothing to
change these basic principles.
In short, under California law, an employee “consents”
to an employment contract by entering into it, even if the
CHAMBER OF COMMERCE V. BONTA 45
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. An employee’s preference
for litigating disputes with an employer, without more, does
not make an arbitration agreement nonconsensual.
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 arbitration agreements 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 681–682 (quoting Volt Info. Scis., Inc.
v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,
478–79 (1989)). Thus, this fundamental rule of consent
means only that “the FAA pre-empts state laws which
‘require a judicial forum for the resolution of claims which
the contracting parties agreed to resolve by arbitration,’”
Volt, 489 U.S. at 478 (quoting Southland, 465 U.S. at 10),
and also preempts any similar judge-made rules of contract
construction or public policy that seek “ends other than the
intent of the parties,” such as a rule “preferring
interpretations that favor the public interest,” Lamps Plus,
Inc. v. Varela, 139 S. Ct. 1407, 1417 (2019). Therefore,
contrary to California and the majority, the concept of
“consent” in the Supreme Court’s arbitration decisions is not
violated when there is economic pressure to enter into an
agreement with disadvantageous terms, or when the party to
the contract with lesser bargaining power is subjectively
unhappy with those terms.
This principle applies equally to employment contracts
and employment-related lawsuits. In upholding a contract
46 CHAMBER OF COMMERCE V. BONTA
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 sufficient 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 9 U.S.C. § 2).
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. Majority at 8, 25. For
the same reason, there is no support for the majority’s view
that AB 51 merely takes away an employer’s ability “to force
arbitration agreements on unwilling employees.” Majority
at 25. Rather, AB 51 disproportionately targets and burdens
employers offering arbitration agreements as a condition of
employment, which “does not place arbitration contracts on
equal footing with all other contracts” and therefore fails to
give “due regard to the federal policy favoring arbitration.”
Imburgia, 577 U.S. at 58 (cleaned up). Therefore, even if
AB 51 applies to a handful of other agreements in addition
to arbitration agreements, its interference with parties’
abilities 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 FAA.” Concepcion, 563 U.S. at 344,
352 (quoting Hines, 312 U.S. at 67).
CHAMBER OF COMMERCE V. BONTA 47
B
Second, the majority attempts to rescue its opinion by
ruling that AB 51’s civil and criminal penalties under
Section 12953 of the California Government Code and
Section 433 of the California Labor Code “are preempted to
the extent that they apply to executed arbitration agreements
covered by the FAA.” Majority at 29. The majority
acknowledges that the FAA preempts any rule that imposes
liability for conduct resulting in an executed arbitration
agreement. Majority at 28–29. In case the effect of this
novel holding is not clear, it means that if 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,”
Senate Judiciary Committee Report at 4, the employer is
safe, but if the employer’s efforts fail, the employer is a
criminal.
Despite holding that AB 51 is preempted in part, the
majority’s unusual bifurcated approach still conflicts with
the FAA. Most important, it does not “place arbitration
agreements upon the same footing as other contracts.”
Southland, 465 U.S. at 16, n.11 (cleaned up). Until AB 51,
neither the California legislature nor any state court has held
that a person can be prosecuted for attempting to enter into a
legal and enforceable agreement. But that is the import of
the majority’s ruling today. Because, as the majority
acknowledges, an executed arbitration agreement is valid
and enforceable (except on grounds that are generally
48 CHAMBER OF COMMERCE V. BONTA
applicable to all contracts), the employer’s conduct
proscribed by Section 432.6—offering an employment
agreement that requires arbitration—results in a contract that
is both lawful and enforceable. But the majority upholds
Section 432.6 and its associated sanctions so long as they are
not applied to conduct leading to executed arbitration
agreements. This holding means that an employer’s attempt
to enter into an arbitration agreement with employees is
unlawful, but a completed attempt is lawful. This 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. Needless to say, such a bizarre
approach does not apply to any other contracts in California.
As such, it is preempted by the FAA for disfavoring
arbitration contracts and obstructing the purpose and
objectives of the FAA.
IV
In sum, AB 51’s transparent effort to sidestep the FAA
in order to disfavor arbitration agreements in employment
contracts is meritless. By upholding this maneuver, the
majority conflicts with Kindred Nursing, which held that the
FAA invalidates state laws that impede the formation of
arbitration agreements. 137 S. Ct. at 1425. The majority
also silently splits from our sister circuits, which have held
that too-clever-by-half workarounds and covert efforts to
block the formation of arbitration agreements are preempted
by the FAA just as much as laws that block enforcement of
such agreements. So we don’t need to wait until the next
Supreme Court reversal to know that we must apply those
principles here. The majority’s bifurcated, half-hearted, and
circuit-splitting approach to invalidating AB 51 makes little
sense, except to the extent it aims at abetting California in
CHAMBER OF COMMERCE V. BONTA 49
disfavoring arbitration. Because the appellants here have
demonstrated a likelihood of success on the merits and the
district court correctly determined that the remaining
preliminary injunction factors supported injunctive relief, I
would affirm the district court. I therefore dissent.