Ninth Circuit holds that mandatory arbitration agreements are enforceable in an employment context despite 2019 law

2021 case review: Martinez-Gonzalez v. Elkhorn Packing Co. LLC

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In 2019 California’s legislature passed and the governor signed AB 51, which makes it unlawful for employers to condition employment or a benefit of employment on the employee waiving their right to trial and being required to arbitrate their disputes. The employer in this case argued that the Federal Arbitration Act preempts AB 51, an argument that was successful in previously casting aside California law preventing class action waivers. This time the argument fell flat, and the Ninth Circuit upheld most of the law, holding that mandatory arbitration agreements are enforceable in an employment context. The Court reasoned that since agreements generally, arbitration or otherwise, are only enforceable if both parties have a choice to enter into the agreement, a law codifying this notion with respect to arbitration agreements did not run afoul of the Federal Arbitration Act that prohibits laws that discriminate against agreements to arbitrate.

The Ninth Circuit examined this issue in a case involving a seasonal farm laborer’s employment contract. The Ninth Circuit reversed a trial court order invalidating an arbitration provision concluding that the facts of the case did not support a finding that the agreement was unenforceable due to duress, as “[w]ith no threat of termination or express statement that the agreements were mandatory, it was clearly erroneous for the district court to conclude that Martinez Gonzalez lacked a reasonable alternative – such as asking whether he could decline to sign the agreements. Furthermore, Martinez-Gonzalez had another reasonable alternative – to revoke the arbitration agreements.” This case made clear that arbitration provisions in the employee and employer context are enforceable. Employers should avoid making arbitration agreements a condition of employment and should have a standardized onboarding procedure to bolster their position that the employee had choice and was not under duress when they agreed to arbitrate.