By Brendan Pierson
(Reuters) - A U.S. appeals court on Wednesday blocked a California law that prohibited employers from requiring their workers to resolve legal disputes in private arbitration, ruling that it conflicts with a federal arbitration statute.
The 2-1 ruling by a three-judge panel of the San Francisco-based 9th U.S. Circuit Court of Appeals handed a victory to the U.S. Chamber of Commerce, the nation's largest business lobby, and other groups that sued California to challenge the measure.
"We are pleased that the 9th Circuit vindicated the strong federal policy favoring arbitration," Chamber of Commerce attorney Jennifer Dickey said in a statement.
The office of California Democratic Attorney General Rob Bonta, which defended the law, did not immediately respond to a request for comment.
California in 2020 became the first state to ban mandatory arbitration of all employment-related disputes in the wake of the #MeToo movement. New York and New Jersey have passed laws prohibiting mandatory arbitration of sexual harassment and discrimination claims, but California's statute was much broader.
In their lawsuit, the business groups argued that a U.S. law called Federal Arbitration Act, which generally requires the enforcement of arbitration agreements, must override the California law.
Critics of mandatory arbitration have said the process tends to favor employers and can discourage workers from bringing legal claims. But the chamber and other business groups have said it provides a more efficient and cheaper alternative to court proceedings, which benefits both workers and employers.
A trial court judge issued a preliminary order blocking the law. The 9th Circuit panel in 2021 reversed that ruling, with Judges Carlos Lucero and William Fletcher voting to keep the law in effect while Circuit Judge Sandra Ikuta dissented.
The panel, however, subsequently decided to reconsider, and Fletcher switched sides in Wednesday's ruling to block the law. Fletcher did not write an opinion in the case, instead joining Ikuta, who said the California law showed "hostility towards arbitration that the FAA (Federal Arbitration Act) was enacted to overcome."