California’s Assembly Bill 51 generally imposes criminal penalties on employers who require workers to sign arbitration agreements. The district court, on a motion for preliminary injunction, found that the Chamber of Commerce was likely to succeed on the merits of an FAA preemption claim over this state law, and the Ninth Circuit recently affirmed. See Chamber of Commerce v. Bonta, No. 20-15291 (9th Cir. Feb. 15, 2023) (click here for a copy of the decision).
I tend to view California as being on the cutting-edge of arbitration reform attempts, but California keeps on running straight into the FAA’s broad preemptive powers. Under the broad purpose-and-objectives preemption standard recognized in older cases like AT&T Mobility v. Concepcion (2011), the FAA would override any state law that is construed to have a disproportionate impact on arbitration, singles out arbitration, undermines arbitration, treats arbitration differently from other contract terms, or presents an obstacle to the FAA’s objectives favoring arbitration. The Ninth Circuit found that AB 51’s criminal penalties burdened or deterred the formation of arbitration agreements, and as a result, the FAA preempts the state law here.
Justice Thomas, in earlier Supreme Court decisions, has been critical of broad purpose-and-objectives preemption tests since such an analysis may depart from the text of a statute. Please see his concurring opinion in Concepcion. In more recent years, the Supreme Court’s analysis of the FAA has become more grounded in the FAA’s text (see cases like Badgerow from last term), and so I wonder if the current Justices would still adhere to a broad preemption test such as the one articulated in Concepcion.
Furthermore, I have long held the view that the FAA’s displacement of state law in state court is likely unconstitutional, and the Supreme Court’s 1984 decision in Southland v. Keating is deeply flawed. The state of California is trying to maintain an effective system to enforce and vindicate its own state laws to protect its own workers. The FAA, which I view as a federal procedural statute applicable solely in federal courts, should not block a state from designing how its own state laws and policies will be enforced in state court. But unfortunately, the Supreme Court since the 1980s has interpreted the FAA as applicable in state courts, and I believe this holding is unconstitutional. There should be more state experimentation with dispute resolution and how state rights are enforced, but such experimentation is difficult with the broad preemptive powers of the FAA.