Key Points

  • Labor Code section 432.6, subdivision (a), makes it illegal for an employer to require an arbitration agreement covering Labor Code or FEHA claims as a condition of employment.
  • Subdivision (f)'s statement that the section does not invalidate agreements 'otherwise enforceable under the Federal Arbitration Act' applies only to agreements governed by the FAA.
  • An agreement formed in violation of subdivision (a) and not enforceable under the FAA is unenforceable under California's general rule against enforcing unlawful contracts (Civ. Code, ยง 1667).
  • Triumph's own declaration and argument that Molina could accept the agreement, negotiate out of it, or look for other work established that the agreement was a condition of employment, so the court did not decide which party bore the burden of proof.
  • The court expressly did not decide the scope of FAA preemption, when an agreement is 'otherwise enforceable' under the FAA, or whether a section 432.6 agreement is void or voidable.

A California appeals court held on Thursday that an employer may not enforce an arbitration agreement it required a worker to sign as a condition of employment when federal arbitration law does not govern the agreement. The ruling applies a 2019 state ban on mandatory employment arbitration to agreements that fall outside the Federal Arbitration Act.

A three-justice panel of the Second Appellate District, Division Four, affirmed a Los Angeles County Superior Court order denying Triumph Residential Services Inc.'s motion to compel arbitration of a wage-and-hour class action brought by a former employee, Tiffany Diane Molina. Justice Daum wrote the published opinion, and Presiding Justice Zukin and Justice Tamzarian joined it.

The case concerned Labor Code section 432.6, enacted through Assembly Bill 51, which makes it illegal for an employer to require an applicant or employee, as a condition of employment, to waive the right to pursue Labor Code or Fair Employment and Housing Act claims in court or before a state agency. A clause in the statute provides that it is not "intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act." The panel held that the clause protects only agreements covered by the federal law, so an illegally imposed agreement governed solely by California law falls under the state's ordinary rule against enforcing unlawful contracts. "No published California opinion that we have found answers this question," Justice Daum wrote.

The opinion explained why the Legislature wrote the clause. Lawmakers hoped it would keep federal courts from ruling that the Federal Arbitration Act preempts, or overrides, the state ban. In Chamber of Commerce of the United States v. Bonta, decided in 2023, the U.S. Court of Appeals for the Ninth Circuit held that the federal act does preempt section 432.6 in cases where the federal act applies.

Triumph is a Los Angeles-based property management company that manages residential buildings in Southern California, and it employed Molina from about April 2023 to about September 2024. Molina sued in November 2024, alleging wage-and-hour violations and unfair business practices. Triumph moved to compel individual arbitration and to dismiss the class claims, and it "expressly asserted that California law applies, not the FAA," the panel wrote. Triumph did not argue on appeal that the federal act applies.

Superior Court Judge Carolyn Kuhl ordered supplemental briefing on section 432.6 and then denied the motion. Addressing the federal-law clause, Judge Kuhl wrote, "The implication of this language is clear: the language of section 432.6 does invalidate arbitration agreements when California law governs."

The appeals court agreed, starting with the statute's text. It reasoned that when the Legislature specifies one exception, courts may not add others. It then turned to the law's purpose and quoted the bill's author, Assembly Member Lena Gonzalez, who described forced arbitration as among "the most harmful practices that have enabled widespread abuse to go undetected for decades" and said that "Workers are forced to sign away their rights in order to get hired."

Because the federal-law clause existed to avoid preemption, the panel concluded, "it is not plausible to conclude that the Legislature meant section 432.6, subdivision (f) to allow employers to enforce illegally formed arbitration agreements when those agreements are subject only to California law."

Triumph had relied on language in Bonta suggesting the statute does not affect an executed agreement's enforceability. The panel responded that the Ninth Circuit decided a case in which the federal act applied and so "had no occasion to consider the distinction that concerns us here." The court also found unhelpful several federal trial court rulings Triumph cited, including Bahamonde v. Amazon.com Services LLC and Kittrell v. USA Debusk LLC in the Northern District of California and Bacajol v. ALDI Foods Inc. in the Central District. Justice Daum wrote that those cases "followed the reasoning of Bonta without examining why section 432.6, subdivision (f) excepts only arbitration agreements subject to the FAA."

The panel then held that Triumph's own filings showed the agreement was a condition of Molina's job. A declaration from Triumph's vice president, Hiren Rajput, stated that Molina received the agreement as "part of the hiring and onboarding" process. Triumph argued that Molina "was free to accept the Arbitration Agreement, attempt to negotiate out of it or look for other employment." The court wrote that the choice between signing and looking elsewhere is "simply another way of stating that Molina's assent to an arbitration agreement was a condition of her employment."

The option to negotiate out fared no better, the court held. Subdivision (c) of the statute deems any agreement that requires an employee to "take any affirmative action in order to preserve their rights" a condition of employment. The panel added that a negotiation might require Molina to give something up, such as accepting lower pay, which would run afoul of subdivision (b)'s ban on retaliating against workers who refuse to sign. The court did not decide which side bore the burden of proof, because Triumph's evidence established the violation either way.

The court marked the limits of its ruling. "For the sake of clarity, we note that we say nothing about the scope of FAA preemption," the opinion said. The panel held only that once an agreement is shown to fall outside the federal act, "that agreement may not be enforced as a matter of California law if it violates section 432.6, subdivision (a)." It did not decide when an agreement is "otherwise enforceable" under the federal act, or whether an agreement made in violation of section 432.6 is void or merely voidable.

Lawyers for Triumph included Lawrence C. Ecoff of Ecoff Campain & Kay. Molina was represented by John G. Yslas of Wilshire Law Firm.

The panel affirmed on the section 432.6 ground. Molina had also argued in the trial court that the agreement was unconscionable, but the appellate opinion does not address that argument. The opinion awards Molina her costs on appeal.