Chamber of Commerce of the U.S. v. Bonta

State laws which burden the formation of arbitration agreements stand as an obstacle to the Federal Arbitration Act and are preempted by federal law. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 683 (1996) and Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017).

The Chamber of Commerce filed for declaratory and injunctive relief regarding California bill AB 51, which subjects an employer to criminal prosecution for requiring an employee to enter into an arbitration agreement, although it enforces arbitration procedures once the agreement is executed. The Chamber of Commerce argued that AB 51 was preempted by the Federal Arbitration Act (FAA), which promotes arbitration for conflict resolution. California responded that AB 51 is not in conflict with the FAA as it is simply a way to combat forced arbitration through involuntary contracts. The United States Supreme Court has held that state laws which burden the formation of arbitration agreements stand as an obstacle to the FAA and are preempted by federal law. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 683 (1996) and Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017). Because California’s penalty system for arbitration agreements violated the equal treatment principle of the FAA and placed burdens on the creation of arbitration agreements, the Court held that the district court did not abuse its discretion when the Chamber of Commerce’s motion for a preliminary injunction was granted.