A three-judge panel of the U.S. 9th District Court of Appeals in San Francisco this week sided with a coalition of major employers in their battle to block a 2019 California law barring employers from requiring employees to resolve serious workplace complaints by private arbitration.

The state law violates federal law, the federal appellate court ruled Jan. 15 in a 2-1 decision, which is considered a victory for big business and a major blow to workers.

In a decision written by Judge Sandra Ikuto, with Judge William Fletcher agreeing, the panel held that the Federal Arbitration Act preempted California’s Assembly Bill 51, which was enacted to protect employees from “forced arbitration” by making it a criminal offense for an employer to require an existing employee or an applicant for employment to consent to arbitrate specified claims as a condition of employment.

“There is no support for California’s description of Assembly Bill 51 as simply an assurance that employees will not be the victims of forced arbitration or be compelled to arbitrate claims against their wills,” Ikuto wrote. She said the California law interferes with the ability of employers and employees to resolve grievances through arbitration.

Labor rights proponents had praised the bill, and Gov. Gavin Newsom signed it into law in 2019 as part of a package of bills that he said would protect workers from sexual harassment and provide them with wage and health protections. Similar legislation had been vetoed repeatedly by Gov. Jerry Brown.

Under what are known as mandatory arbitration agreements, an increasing number of businesses require employees to settle discrimination, harassment and other workplace complaints in private, closed-door sessions rather than in public court proceedings.

Such agreements have proliferated in recent years and often as a condition of employment.

Plaintiffs in the lawsuit filed in 2020 are the U.S. Chamber of Commerce, the California Chamber of Commerce, the National Retail Federation, the California Retailers Association, the National Association of Securities Companies, the Home Care Association of America, and the California Association of Health Services.

Judge Carlos Lucero dissented, saying that the California law protected anyone entering into an employment contract from coercion by employers to effectively “waive their rights as employees.”

California had argued unsuccessfully that its law avoided conflict with a U.S. Supreme Court precedent, which holds that a state rule that discriminates against arbitration is preempted by the Federal Arbitration Act.

The appeals panel affirmed an injunction blocking enforcement of the state law that had been granted by the U.S. District Court.

In his dissent, Lucero said that in 2000, approximately 2% of nonunion employers required employees to sign arbitration agreements, but by 2018 that number grew to approximately 56%.

He called appellate court panel’s decision a “misinterpretation [that] leaves state legislatures powerless to ensure that arbitration clauses in these employment agreements are freely and openly negotiated” and leaves courts “with an increasingly diminished role, or no role at all, in employer-employee disputes.”