Court Opinion

ID: 9371215
Source: CourtListenerOpinion
Date Created: 2023-02-15 19:00:32.728097+00
Date Added: 2024-06-11T17:16:26.120898
License: Public Domain

FOR PUBLICATION

     UNITED STATES COURT OF APPEALS
          FOR THE NINTH CIRCUIT

CHAMBER OF COMMERCE OF                  No. 20-15291
THE UNITED STATES OF
AMERICA; CALIFORNIA                        D.C. No.
CHAMBER OF COMMERCE;                    2:19-cv-02456-
NATIONAL RETAIL                            KJM-DB
FEDERATION; CALIFORNIA
RETAILERS ASSOCIATION;
NATIONAL ASSOCIATION OF                   OPINION
SECURITY COMPANIES; HOME
CARE ASSOCIATION OF
AMERICA; CALIFORNIA
ASSOCIATION FOR HEALTH
SERVICES AT HOME,

       Plaintiffs-Appellees,

v.

ROB BONTA, in his official capacity
as the Attorney General of the State
of California; LILIA GARCIA-
BROWER, in her official capacity as
the Labor Commissioner of the State
of California; JULIE A. SU, in her
official capacity as the Secretary of
the California Labor and Workforce
Development Agency; KEVIN
RICHARD KISH, in his official
2                CHAMBER OF COMMERCE V. BONTA

capacity as Director of the California
Department of Fair Employment and
Housing of the State of California,

         Defendants-Appellants.

       Appeal from the United States District Court
           for the Eastern District of California
    Kimberly J. Mueller, Chief District Judge, Presiding

          Argued and Submitted December 7, 2020
          Submission Withdrawn August 22, 2022
               Resubmitted August 22, 2022
                 San Francisco, California

                    Filed February 15, 2023

    Before: Carlos F. Lucero,* William A. Fletcher, and
             Sandra S. Ikuta, Circuit Judges.

                    Opinion by Judge Ikuta;
                    Dissent by Judge Lucero

*
  The Honorable Carlos F. Lucero, United States Circuit Judge for the
U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
                 CHAMBER OF COMMERCE V. BONTA                        3

                          SUMMARY **

                           Civil Rights

    Affirming the district court’s grant of a preliminary
injunction in favor of plaintiffs, a collection of trade
association and business groups (collectively, the Chamber
of Commerce), the panel held that the Federal Arbitration
Act (FAA) preempted California’s Assembly Bill 51 (AB
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.
    The panel explained that Assembly Bill 51 criminalizes
only contract formation; an arbitration agreement executed
in violation of this law is enforceable. California took this
approach to avoid conflict with Supreme Court precedent,
which holds that a state rule that discriminates against
arbitration is preempted by the Federal Arbitration
Act. Under Section 433 of the California Labor Code, an
employer who violates AB 51 has committed a
misdemeanor. See CAL. LAB. CODE § 433. But to avoid
preemption by the FAA, the California legislature included
a provision ensuring that if the parties did enter into an
arbitration agreement, it would be enforceable. See Cal.
Lab. Code § 432.6(f). This resulted in the oddity that an
employer subject to criminal prosecution for requiring an

**
   This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4               CHAMBER OF COMMERCE V. BONTA

employee to enter into an arbitration agreement could
nevertheless enforce that agreement once it was executed.
    The panel stated that 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), make it clear that state rules
that burden the formation of arbitration agreements stand as
an obstacle to the FAA. Although the plaintiffs in Casarotto
and Kindred Nursing were attempting to enforce an executed
arbitration agreement, the Court’s rationale for invalidating
state rules burdening the formation of arbitration agreements
was equally applicable to a state rule like AB 51, which
discriminates against the formation of an arbitration
agreement but does not make an improperly formed
arbitration agreement unenforceable. The panel concluded
that the approach adopted by the Supreme Court in
Casarotto and Kindred Nursing for determining whether the
FAA preempts a state rule limiting the ability of parties to
form arbitration agreements applies to state rules that
prevent parties from entering into arbitration agreements in
the first place. The panel further agreed with two sister
circuits that the FAA preempts a state rule that discriminates
against arbitration by discouraging or prohibiting the
formation of an arbitration agreement. See Saturn Distrib.
Corp. v. Williams, 905 F.2d 719, 723 (4th Cir. 1990); Sec.
Indus. Ass’n v. Connolly, 883 F.2d 1114, 1123–24 (1st Cir.
1989).
    Applying these principles to determine whether AB 51
was preempted by the FAA, the panel held that AB 51’s
penalty-based scheme to inhibit arbitration agreements
before they are formed violates the “equal-treatment
principle” inherent in the FAA and is the type of device or
formula evincing hostility towards arbitration that the FAA
was enacted to overcome. Because the FAA’s purpose is to
               CHAMBER OF COMMERCE V. BONTA                5

further Congress’s policy of encouraging arbitration, and
AB 51 stands as an obstacle to that purpose, AB 51 was
therefore preempted.
    Because all provisions of AB 51 work together to burden
the formation of arbitration agreements, the panel rejected
California’s argument that the court could sever Section 433
of the California Labor Code under the severability clause in
Section 432.6(i), and then uphold the balance of AB 51. AB
51 provides no authority to delete Section 433, because the
severability clause in Section 432.6(i) applies only to
Section 432.6. In any event, the panel could not presume
that the California legislature would want to invalidate a
generally applicable provision such as Section 433.
    Because AB 51 was preempted by the FAA, the district
court correctly held that the Chamber of Commerce was
likely to succeed on the merits of its claim for declaratory
and injunctive relief. And because California did not
challenge the district court’s holding that the remaining
factors also weighed in favor of the Chamber of Commerce,
the panel held that the district court did not abuse its
discretion when it granted the Chamber of Commerce’s
motion for a preliminary injunction.
    Dissenting, Judge Lucero stated that the majority
nullified a California law codifying what the enactors of the
FAA and the Supreme Court took as a given: arbitration is
a matter of contract and agreements to arbitrate must be
voluntary and consensual. Judge Lucero stated that AB 51
operates in a substantively different manner than state rules
previously struck down as preempted by the FAA. Unlike
the state statutes in Kindred Nursing and Casarotto, which
directly invalidated arbitration agreements, AB 51 regulates
conduct preceding arbitration agreements. AB 51 ensures
6              CHAMBER OF COMMERCE V. BONTA

that arbitration agreements are entered on fair terms yet does
not go so far as to invalidate arbitration agreements that are
not. The majority’s application of Kindred Nursing and
Casarotto to AB 51 improperly expanded prior
jurisprudence.

                        COUNSEL

Chad A. Stegeman (argued) and Kristin A. Liska, Deputy
Attorneys General; Michelle M. Mitchell, Supervising
Deputy Attorney General; Thomas S. Patterson, Senior
Assistant Attorney General; Xavier Becerra; Attorney
General of California; Office of the California Attorney
General, San Francisco, California; Joshua A. Klein, Deputy
Solicitor General, Office of the Attorney General, Oakland,
California; for Defendants-Appellants.
Andrew J. Pincus (argued), Archis A. Parasharami, and
Daniel E. Jones, Mayer Brown LLP, Washington, D.C.;
Donald Falk, Schaerr Jaffe LLP, San Francisco, California;
Maurice Baskin, Littler Mendelson PC, Washington, D.C.;
Bruce J. Sarchet, Littler Mendelson, Sacramento, California;
for Plaintiffs-Appellees.
Cliff M. Palefsky, Keith Ehrman, and Matt Koski, McGuinn
Hillsman & Palefsky, San Francisco, California, for Amicus
Curiae California Employment Lawyers Association.
George W. Abele and Deisy Castro, Paul Hastings LLP, Los
Angeles, California, for Amicus Curiae California
Employment Law Council.
Dylan B. Carp and Scott P. Jang, Jackson Lewis PC, San
Francisco, California; Angelo I. Amador, Restaurant Law
               CHAMBER OF COMMERCE V. BONTA               7

Center, Washington, D.C.; for Amici Curiae Restaurant Law
Center and California Restaurant Association.
Barbara J. Miller and Kevin J. Bohm, Morgan, Lewis &
Bockius LLP, Costa Mesa, California; Thomas M. Peterson,
Morgan, Lewis & Bockius LLP, San Francisco, California;
for Amicus Curiae Employers Group.
Fred Hiestand, Fred J. Hiestand APC, Sacramento,
California, for Amicus Curiae Civil Justice Association of
California.

                        OPINION

IKUTA, Circuit Judge:

    California enacted Assembly Bill 51 (AB 51) to protect
employees from what it called “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.
But AB 51 criminalizes only contract formation; an
arbitration agreement executed in violation of this law is
enforceable. California took this approach to avoid conflict
with Supreme Court precedent, which holds that a state rule
that discriminates against arbitration is preempted by the
Federal Arbitration Act (FAA). This appeal raises the
question whether the FAA preempts a state rule that
discriminates against the formation of an arbitration
agreement, even if that agreement is ultimately enforceable.
We hold that such a rule is preempted by the FAA.
8                 CHAMBER OF COMMERCE V. BONTA

                                    I
    The history and purpose of AB 51 must be understood in
the context of California’s legislative efforts to impose limits
on parties’ agreements to arbitrate certain disputes. The
FAA embodies a “national policy favoring arbitration,”
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,
443 (2006), and the Supreme Court has interpreted its scope
broadly, see Allied-Bruce Terminix Cos., Inc. v. Dobson, 513
U.S. 265, 274 (1995). Over the years, the Supreme Court
has struck down a number of California laws or judge-made
rules relating to arbitration as preempted by the FAA. 1
    Mindful of this history, the California legislature
engaged in a prolonged effort to craft legislation that would
prevent employers from requiring employees to enter into
arbitration agreements as a condition of employment, while
avoiding conflict with the FAA. In 2015, the California
legislature passed Assembly Bill 465, which banned
employers from requiring arbitration agreements as a
condition of employment and rendered unenforceable any
contract including such a requirement. A.B. 465, 2015 Leg.

1
 See, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011)
(holding that the FAA preempted a California rule that contract
provisions disallowing classwide arbitration are unconscionable);
Preston v. Ferrer, 552 U.S. 346, 349–50 (2008) (holding that the FAA
preempted a California law giving a state agency primary jurisdiction
over a dispute involving the California Talent Agency Act despite the
parties’ agreement to arbitrate such disputes); Perry v. Thomas, 482 U.S.
483, 484, 491 (1987) (holding that the FAA preempted a state statute
permitting litigation of wage collection actions despite the existence of a
private agreement to arbitrate).
                  CHAMBER OF COMMERCE V. BONTA                           9

(Cal. 2015). 2 The bill was vetoed by Governor Jerry Brown
on the ground that such a “blanket ban” had been
“consistently struck down in other states as violating the
Federal Arbitration Act” and noted that the California
Supreme Court and United States Supreme Court had
invalidated similar legislation. Governor’s Veto Message
for A.B. 465, 2015–16 Cal. Leg., Reg. Sess. (2015).
    Three years later, the state legislature passed AB 3080,
which prohibited an employer from requiring an employee
to waive a judicial forum as a condition of employment.
A.B. 3080, 2018 Leg. (Cal. 2018). Governor Brown
exercised his veto power again, explaining that AB 3080
“plainly violates federal law.” Governor’s Veto Message for
A.B. 3080, 2017–18 Cal. Leg., Reg. Sess. (2018). Governor
Brown cited the “clear” direction from the United States
Supreme Court in DIRECTV, Inc. v. Imburgia, 577 U.S. 47,
58–59 (2015) and Kindred Nursing Ctrs. Ltd. P’ship v.
Clark, 137 S. Ct. 1421, 1428 (2017).
   After Governor Brown left office, the California
Assembly tried again, introducing AB 51 in December 2018,
which added a number of interlocking provisions to the
California Labor Code.
     First, AB 51 added Section 432.6 to Article 3 of the
California Labor Code.        Section 432.6(a) prohibits
employers from requiring employees to waive, as a
condition of employment, the right to litigate certain claims.
It states:

2
  The relevant legislative history referenced here is publicly available on
the California Legislative Information website: https://leginfo.legisl
ature.ca.gov.
10             CHAMBER OF COMMERCE V. BONTA

       A person shall not, as a condition of
       employment, continued employment, or the
       receipt of any employment-related benefit,
       require any applicant for employment or any
       employee to waive any right, forum, or
       procedure for a violation of any provision of
       the California Fair Employment and Housing
       Act [FEHA] (Part 2.8 (commencing with
       Section 12900) of Division 3 of Title 2 of the
       Government Code) or this code, including the
       right to file and pursue a civil action or a
       complaint with, or otherwise notify, any state
       agency, other public prosecutor, law
       enforcement agency, or any court or other
       governmental entity of any alleged violation.

CAL. LAB. CODE § 432.6(a) (West 2020). Under Section
432.6(c), the phrase “a condition of employment” includes
“an agreement that requires an employee to opt out of a
waiver or take any affirmative action in order to preserve
their rights.” Id. § 432.6(c).
    Section 432.6(b) prohibits employers from retaliating
against applicants for employment or employees based on
their refusal to waive such rights. Id. § 432.6(b). It states:

       An employer shall not threaten, retaliate or
       discriminate against, or terminate any
       applicant for employment or any employee
       because of the refusal to consent to the waiver
       of any right, forum, or procedure for a
       violation of the California Fair Employment
       and Housing Act or this code, including the
       right to file and pursue a civil action or a
                CHAMBER OF COMMERCE V. BONTA                 11

       complaint with, or otherwise notify, any state
       agency, other public prosecutor, law
       enforcement agency, or any court or other
       governmental entity of any alleged violation.

Id. Section 432.6(f) addresses FAA preemption, stating:
“Nothing in this section is intended to invalidate a written
arbitration agreement that is otherwise enforceable under the
Federal Arbitration Act (9 U.S.C. Sec. 1 et seq.).” Id.
§ 432.6(f). There is also a severability clause: “The
provisions of this section are severable. If any provision of
this section or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be
given effect without the invalid provision or application.”
Id. § 432.6(i).
   There are two methods for enforcing AB 51. The act
added Section 12953 to the California Government Code,
which states: “It is an unlawful employment practice for an
employer to violate Section 432.6 of the Labor Code.” CAL.
GOV’T CODE § 12953 (West 2020). Further, because Section
432.6 is contained in Article 3 of the California Labor Code,
Section 433 of the California Labor Code applies. It states:
“Any person violating this article [Article 3] is guilty of a
misdemeanor.” CAL. LAB. CODE § 433.
    Because the parties to an arbitration agreement must
waive the right to litigate in a judicial forum, see CAL. LAB.
CODE § 432.6(a), AB 51 effectively bars an employer from
requiring an employee or applicant for employment to enter
into an agreement to arbitrate certain claims as a condition
for being hired or for keeping a job, or from retaliating
against an employee or applicant who refuses to do so, see
id. § 432.6(a)–(b). AB 51 also bars employers from using
an employment contract that requires the employee to take
12             CHAMBER OF COMMERCE V. BONTA

an affirmative step in order to opt out of an arbitration
agreement. See id. § 432.6(c). Under Section 433 of the
California Labor Code, an employer who violates AB 51 has
committed a misdemeanor. See id. § 433. But to avoid
preemption by the FAA, the California legislature included
a provision ensuring that if the parties did enter into an
arbitration agreement, it would be enforceable. See id. §
432.6(f). This resulted in the oddity that an employer subject
to criminal prosecution for requiring an employee to enter
into an arbitration agreement could nevertheless enforce that
agreement once it was executed.
    Legislative reports made clear why AB 51 provided that
criminal conduct—entering into an arbitration agreement
with an employee—does not affect the enforceability of the
resultant agreement to arbitrate. The California Senate
Judiciary Committee report on AB 51 asserted that AB 51
“successfully navigates around” Supreme Court precedent
and avoids preemption by applying only to the condition in
which an arbitration agreement is made, as opposed to
banning arbitration itself. S. JUDICIARY COMM. REPORT,
Reg. Sess., at 8 (Cal. 2019); see also ASSEMBLY COMM. ON
LAB. & EMP. REPORT, Reg. Sess., at 3 (Cal. 2019) (same).
According to these reports, AB 51 was designed to give the
legislature “a reasoned case” that the bill would not be
preempted, S. JUDICIARY COMM. REPORT, at 7, given that
“[t]here has not been a preemption case in the absence of an
arbitration agreement,” ASSEMBLY COMM. ON LAB. & EMP.
REPORT, at 3. In short, “AB 51 seeks to sidestep the
preemption issue” relating to arbitration agreements. S.
COMM. ON LAB., PUB. EMP., & RET. REPORT, Reg. Sess., at 4
(Cal. 2019). In other words, the legislature was persuaded
by the legal theory that the FAA did not preempt a state rule
that inhibits the formation of an arbitration agreement, but
                 CHAMBER OF COMMERCE V. BONTA                    13

does not render such an agreement unenforceable once
executed.
    California’s new governor, Gavin Newsom, signed the
bill into law, even though AB 51 was identical in many
respects to the vetoed AB 3080. See S. JUDICIARY COMM.
REPORT, at 9. AB 51 was enacted with an effective date of
January 1, 2020. CAL. LAB. CODE § 432.6(h).
    On December 9, 2019, a collection of trade associations
and business groups (collectively, the Chamber of
Commerce) 3 filed a complaint for declaratory and injunctive
relief against various California officials (collectively,
“California”). The Chamber of Commerce sought a
declaration that AB 51 was preempted by the FAA, a
permanent injunction prohibiting California officials from
enforcing AB 51, and a temporary restraining order. The
district court granted the motion for a temporary restraining
order, and after a hearing, issued a minute order granting the
motion for a preliminary injunction. The district court ruled
that the Chamber of Commerce was likely to succeed on the
merits of its preemption claim because AB 51 “treats
arbitration agreements differently from other contracts” and
“conflicts with the purposes and objectives of the FAA.”
California filed a timely interlocutory appeal. We have
jurisdiction under 28 U.S.C. § 1292(a)(1) and now affirm.

3
 The appellees are the Chamber of Commerce of the United States of
America, the California Chamber of Commerce, the National Retail
Federation, the California Retailers Association, the National
Association of Security Companies, the Home Care Association of
America, and the California Association for Health Services at Home.
14              CHAMBER OF COMMERCE V. BONTA

                               II
    “We review a district court’s decision to grant or deny a
preliminary injunction for abuse of discretion.” Roman v.
Wolf, 977 F.3d 935, 941 (9th Cir. 2020). “The legal issues
underlying” the district court’s decision “are reviewed de
novo,” and “the district court’s factual findings are reviewed
for clear error.” See adidas Am., Inc. v. Skechers USA, Inc.,
890 F.3d 747, 753 (9th Cir. 2018) (citations omitted). “A
district court abuses its discretion in issuing a preliminary
injunction if its decision is based on either an erroneous legal
standard or clearly erroneous factual findings.” Negrete v.
Allianz Life Ins. Co. of N. Am., 523 F.3d 1091, 1096 (9th Cir.
2008) (citation omitted).
    A party moving for preliminary injunctive relief must
establish (1) a likelihood of success on the merits, (2) a
likelihood of irreparable harm, (3) that the balance of harm
tips in the movant’s favor, and (4) that the injunction is in
the public interest. See All. for the Wild Rockies v. Cottrell,
632 F.3d 1127, 1131 (9th Cir. 2011). “The first factor—
likelihood of success on the merits—is the most important
factor.” California by & through Becerra v. Azar, 950 F.3d
1067, 1083 (9th Cir. 2020) (en banc) (citation and quotation
marks omitted). Additionally, when a party seeks a
preliminary injunction against the government, as is the case
here, the balance of the equities and public interest factors
merge. See Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073,
1092 (9th Cir. 2014) (citing Nken v. Holder, 556 U.S. 418,
435 (2009)).
    California does not challenge the district court’s holding
that the balance of equities and the public interest weigh in
favor of the Chamber of Commerce. Instead, California
challenges only the district court’s holding that AB 51 is
               CHAMBER OF COMMERCE V. BONTA                 15

preempted by the FAA, and that the Chamber of Commerce
is therefore likely to succeed on the merits of their claim for
declaratory and injunctive relief.
                              III
                              A
    We begin by spelling out the applicable principles of
preemption. The Supremacy Clause provides that the
Constitution and laws of the United States “shall be the
supreme Law of the Land; and the Judges in every State shall
be bound thereby, any Thing in the Constitution or Laws of
any State to the Contrary notwithstanding.” U.S. CONST. art.
VI, cl. 2. The Supremacy Clause “provides ‘a rule of
decision’ for determining whether federal or state law
applies in a particular situation.” Kansas v. Garcia, 140 S.
Ct. 791, 801 (2020) (quoting Armstrong v. Exceptional Child
Ctr., Inc., 575 U.S. 320, 324 (2015)).
    A federal statute may expressly preempt state law by
enacting a clear statement to that effect. Id. In the absence
of an express provision for preemption, the Supreme Court
has “found that state law must yield to a congressional Act
in at least two circumstances.” Crosby v. Nat’l Foreign
Trade Council, 530 U.S. 363, 372 (2000). “[W]hen the
scope of a [federal] statute indicates that Congress intended
federal law to occupy a field exclusively,” state law is
preempted. Kurns v. R.R. Friction Prods. Corp., 565 U.S.
625, 630 (2012) (quoting Freightliner Corp. v. Myrick, 514
U.S. 280, 287 (1995) (second alteration in original)). “And
even if Congress has not occupied the field, state law is
naturally preempted to the extent of any conflict with a
federal statute.” Crosby, 530 U.S. at 372. Conflict
preemption may occur either where it is “impossible for a
private party to comply with both state and federal
16             CHAMBER OF COMMERCE V. BONTA

requirements,” Merck Sharp & Dohme Corp. v. Albrecht,
139 S. Ct. 1668, 1672 (2019), or where, under the
circumstances of a particular case, the challenged state law
“creates an unacceptable ‘obstacle to the accomplishment
and execution of the full purposes and objectives of
Congress,’” Wyeth v. Levine, 555 U.S. 555, 563–64 (2009)
(quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
    A state law may pose an obstacle to a federal statute in
various ways. There is no “rigid formula or rule” for
determining when an act of Congress preempts a state law.
Hines, 312 U.S. at 67. Rather, what constitutes “a sufficient
obstacle is a matter of judgment, to be informed by
examining the federal statute as a whole and identifying its
purpose and intended effects.” Crosby, 530 U.S. at 373. If
the purpose and intended effects of the federal statute are
blocked by the state law, then “the state law must yield to
the regulation of Congress within the sphere of its delegated
power.” Id. (quoting Savage v. Jones, 225 U.S. 501, 533
(1912)).
                              B
    “The FAA . . . does [not] reflect a congressional intent to
occupy the entire field of arbitration.” Volt Info. Scis., Inc.
v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,
477 (1989). But “even if Congress has not occupied the
field, state law is naturally preempted to the extent of any
conflict with a federal statute.” Crosby, 530 U.S. at 372
(citations omitted).
    Applying the principles of obstacle preemption to
determine the FAA’s preemptive scope, we begin with the
FAA’s “purpose and intended effects,” id. at 373, because
“[t]he purpose of Congress is the ultimate touchstone in
every pre-emption case,” Medtronic, Inc. v. Lohr, 518 U.S.
               CHAMBER OF COMMERCE V. BONTA                17

470, 485 (1996) (citations and quotation marks omitted).
“[W]e do not write on a blank slate, for the Supreme Court
has repeatedly identified the purposes” and objectives of the
FAA. Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425,
433 (9th Cir. 2015). The Supreme Court’s cases “place it
beyond dispute that the FAA was designed to promote
arbitration.” Concepcion, 563 U.S. at 345. The Court has
“repeatedly described the Act as ‘embod[ying] [a] national
policy favoring arbitration,’ and ‘a liberal federal policy
favoring arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary.’” Id. at
346 (citations omitted). In enacting the FAA, Congress
intended to combat the longstanding “hostility towards
arbitration” that “had manifested itself in a great variety of
devices and formulas declaring arbitration against public
policy.” Id. at 342 (citation and quotation marks omitted).
We have gone further, stating that “the FAA’s purpose is to
give preference (instead of mere equality) to arbitration
provisions.” Mortensen v. Bresnan Commc’ns, LLC, 722
F.3d 1151, 1160 (9th Cir. 2013).
    In considering the preemptive scope of the FAA, the
Supreme Court has focused on cases involving state laws or
judge-made rules that single out executed arbitration
agreements and prevent the enforcement of such agreements
according to their terms. See, e.g., Imburgia, 577 U.S. at 49;
Concepcion, 563 U.S. at 344; Allied-Bruce Terminix Cos.,
Inc., 513 U.S. at 272; Perry, 482 U.S. at 491; Southland
Corp. v. Keating, 465 U.S. 1, 10 (1984). The Court has held
that such state laws and rules are preempted by § 2 of the
FAA, which provides that “an agreement in writing to
submit to arbitration an existing controversy arising out of
such a contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such grounds as
18              CHAMBER OF COMMERCE V. BONTA

exist at law or in equity for the revocation of any contract . .
. . ” 9 U.S.C. § 2. Based on the purpose of the FAA and the
language of § 2, the Court has established an “equal-
treatment principle,” Kindred Nursing, 137 S. Ct. at 1426,
which “requires courts to place arbitration agreements on
equal footing with all other contracts,” id. at 1424 (citation
and quotation marks omitted). Under this principle, “[a]
court may invalidate an arbitration agreement based on
‘generally applicable contract defenses’ like fraud or
unconscionability, but not on legal rules that ‘apply only to
arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.’” Id. at 1426 (quoting
Concepcion, 563 U.S. at 339). Even if a state law is
purportedly “generally applicable,” the FAA preempts the
law if it “interferes with fundamental attributes of
arbitration,” Concepcion, 563 U.S. at 343–44, or has a
“disproportionate impact on arbitration,” Mortensen, 722
F.3d at 1159 (citation and quotation marks omitted).
    A state rule interferes with arbitration if it discriminates
against arbitration on its face or if it “covertly accomplishes
the same objective by disfavoring contracts that have the
defining features of arbitration agreements.” Kindred
Nursing, 137 S. Ct at 1423. Examples of state rules that
disfavor the “defining features” of arbitration include a rule
that prohibits an agreement that waives the right to a class
action, or one that waives the right to a jury trial, or any other
of the myriad “devices and formulas” used to declare
arbitration against public policy. See Concepcion, 563 U.S.
at 342.
    The Court has made clear that the FAA’s preemptive
scope is not limited to state rules affecting the enforceability
of arbitration agreements, but also extends to state rules that
discriminate against the formation of arbitration agreements.
                CHAMBER OF COMMERCE V. BONTA                 19

See Kindred Nursing, 137 S. Ct. at 1428–29; Doctor’s
Assocs., Inc. v. Casarotto, 517 U.S. 683 (1996). In
Casarotto, the Court held that the FAA preempted a
Montana law making an arbitration agreement
unenforceable unless the contract had the proper notice on
the first page. 517 U.S. at 683. The Court held that “[t]he
‘goals and policies’ of the FAA . . . are antithetical to
threshold limitations placed specifically and solely on
arbitration provisions.” Id. at 688 (citation omitted). In
Kindred Nursing, the Court held that the FAA preempted the
“Kentucky Supreme Court’s clear-statement rule,” which
provided that a person holding a power of attorney for a
family member could not enter into an arbitration agreement
for that family member, unless the power of attorney gave
the person express authority to do so. 137 S. Ct. at 1425–26.
The Court reasoned that the Kentucky rule “specially
impeded the ability of attorneys-in-fact to enter into
arbitration agreements” and “thus flouted the FAA’s
command to place those agreements on an equal footing with
all other contracts.” Id. at 1429.
    Casarotto and Kindred Nursing make it clear that state
rules that burden the formation of arbitration agreements
stand as an obstacle to the FAA. As Kindred Nursing
explained, the “FAA cares not only about the
‘enforce[ment]’ of arbitration agreements, but also about
their initial ‘valid[ity]’—that is, about what it takes to enter
into them.” Kindred Nursing, 137 S. Ct. at 1428 (alterations
in original). The Court has recognized that it would be
“trivially easy for States to undermine the Act—indeed, to
wholly defeat it”—by fashioning a rule that would make the
formation of any arbitration agreement invalid. Id. “The
FAA would then mean nothing at all—its provisions
20             CHAMBER OF COMMERCE V. BONTA

rendered helpless to prevent even the most blatant
discrimination against arbitration.” Id. at 1428–29.
    Although the plaintiffs in Casarotto and Kindred
Nursing were attempting to enforce an executed arbitration
agreement, the Court’s rationale for invalidating state rules
burdening the formation of arbitration agreements is equally
applicable to a state rule like AB 51, which discriminates
against the formation of an arbitration agreement but does
not make an improperly formed arbitration agreement
unenforceable. Given the evidence that AB 51’s unusual
structure (criminalizing the act of entering into an
agreement, while allowing the parties to enforce it once
executed) was for the purpose of “navigating around”
Supreme Court precedent, it is hardly surprising that there is
no Supreme Court precedent on point. Still, nothing in
Casarotto or Kindred Nursing suggests that a state rule
targeting only the formation of an arbitration agreement falls
outside of the FAA’s preemptive scope. As the Supreme
Court has indicated, if a state could criminalize the conduct
of entering into an arbitration agreement, it could entirely
defeat the FAA’s purpose. Kindred Nursing, 137 S. Ct. at
1428. Accordingly, “[t]o restrict the FAA to existing
agreements would be to allow states to ‘wholly eviscerate
Congressional intent to place arbitration agreements upon
the same footing as other contracts.’” Saturn Distrib. Corp.
v. Williams, 905 F.2d 719, 723 (4th Cir. 1990) (quoting
Southland Corp., 465 U.S. at 16–17 n.11). We therefore
conclude that the approach adopted by the Supreme Court in
Casarotto and Kindred Nursing for determining whether the
FAA preempts a state rule limiting the ability of parties to
form arbitration agreements applies to state rules that
prevent parties from entering into arbitration agreements in
the first place.
               CHAMBER OF COMMERCE V. BONTA                21

    Our conclusion “falls well within the confines of (and
goes no further than) present well-established law,” Kindred
Nursing, 137 S. Ct. at 1429, as indicated by two of our sister
circuits, which have reached similar conclusions, see Saturn,
905 F.2d at 724; Sec. Indus. Ass’n v. Connolly, 883 F.2d
1114, 1123–24 (1st Cir. 1989). In Saturn, the Fourth Circuit
considered a Virginia law that prohibited automobile
manufacturers and dealers from entering into an agreement
that contained a non-negotiable arbitration provision. 905
F.2d at 724. The court rejected the state’s argument that
FAA preemption “does not extend to laws that prohibit or
regulate the formation of arbitration agreements,” because
such a restriction would defeat Congress’s equal treatment
principle. Id. at 723 (emphasis in original). Therefore, the
“FAA does not allow a state legislature to circumvent
Congressional intent by enacting special rules to discourage
or prohibit the formation of agreements to arbitrate.” Id.
According to the court, “common sense dictates” that a state
court does not escape its obligation to enforce arbitration
agreements to the same extent as other contracts merely “by
banning the formation of arbitration agreements.” Id.
(citation omitted). Accordingly, “arbitration agreements
may not be burdened with conditions on (their) formation
and execution . . . which are not part of the generally
applicable contract law.” Id. at 723–24 (cleaned up).
    Applying this principle to the state law at issue, the
Fourth Circuit determined that “Virginia law generally
permits contracting parties to make terms nonnegotiable, and
singles out arbitration provisions as an exception to that
rule.” Id. at 724. It rejected the argument that the law was
not discriminatory because the state statute “[did] not
mention arbitration, and [could] appl[y] to any contractual
provision that denies dealers access to the ‘procedures,
22             CHAMBER OF COMMERCE V. BONTA

forums or remedies’ in Virginia,” such as “forum-selection
provisions.” Id. at 724–25. As the court explained, “the
mere fact that a statute or regulation does not expressly refer
to arbitration is not determinative on the question of whether
it impermissibly singles out arbitration provisions,” id. at
725, because a state statute that does not refer to arbitration
may be “preempted to the extent that it had the effect of
prohibiting arbitration provisions,” id. (citing Southland
Corp., 465 U.S. at 16–17 n.11).
    Because the state statute was “clearly intended to avoid
potentially adhesive arbitration contracts between
automobile manufacturers and dealers,” and the state had not
“uniformly barred the formation of nonnegotiable
contractual terms or declared all contracts of adhesion to be
presumptively unenforceable,” the Fourth Circuit concluded
that the law treated arbitration agreements “more harshly
than other contracts,” and was thus preempted. Id. at 725–
26.
    The First Circuit reached a similar conclusion in
Connolly. In that case, it held that the FAA preempted
Massachusetts regulations that prohibited securities firms
from requiring clients to agree to arbitration “as a
nonnegotiable condition precedent to account relationships.”
883 F.2d at 1117. The court rejected as “too clever by half”
the state’s argument that the regulations addressed the
conduct of the broker-dealers, not the arbitration
agreements. Id. at 1122. It reasoned that the regulations, by
requiring “what is not generally required to enter contracts,”
id. at 1123, “inhibit a party’s willingness to create an
arbitration contract,” id., and as such stand as an obstacle to
Congress’s purpose in enacting the FAA because they
conflict with the federal policy to favor arbitration
agreements, see id. at 1124.
                  CHAMBER OF COMMERCE V. BONTA                        23

      We agree with our sister circuits that the FAA preempts
a state rule that discriminates against arbitration by
discouraging or prohibiting the formation of an arbitration
agreement. See Saturn, 905 F.2d at 723; Connolly, 883 F.2d
at 1123–24. A law that “inhibit[s] a party’s willingness to
create an arbitration contract” stands as an obstacle to the
purposes of the FAA. Connolly, 883 F.2d at 1123.
Moreover, a state rule discriminates against arbitration even
if it does not expressly refer to arbitration, but instead targets
its defining characteristics. See Saturn, 905 F.2d at 725; see
also Connolly, 883 F.2d at 1123. Because the FAA’s
purpose is to further Congress’s policy of encouraging
arbitration, a state law that also applies to other provisions
(such as forum-selection clauses) unrelated to arbitration
may be preempted if its focus is on arbitration. See
Concepcion, 563 U.S. at 344; see also Saturn, 905 F.2d at
725.
                                   C
   We now apply the principles set forth above to determine
whether AB 51 is preempted by the FAA. The central
question is whether AB 51 stands as an “unacceptable
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress” in enacting the FAA.
Wyeth, 555 U.S. at 563–64 (citation and quotations
omitted). 4

4
  Because of California’s approach to drafting AB 51, § 2 does not
directly apply to AB 51. Section 2 provides that an “agreement in writing
to submit to arbitration an existing controversy . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C. § 2. But AB 51
does not address the validity, revocability, or enforceability of an
arbitration agreement. Instead, it provides that nothing in the act “is
24                CHAMBER OF COMMERCE V. BONTA

    We begin by asking whether AB 51 discriminates against
arbitration agreements, either expressly or by disfavoring
agreements that have the defining features of arbitration
agreements.
    AB 51 does not expressly bar arbitration agreements.
There is no doubt, though, that AB 51 disfavors the
formation of agreements that have the essential terms of an
arbitration agreement. AB 51 prevents an employer from
entering into a contract that includes non-negotiable terms
requiring an employee to waive “any right, forum, or
procedure for a violation of any provision of the [FEHA] or
[the California Labor Code],” including “the right to file and
pursue a civil action.” A.B. 51, 2019 Leg. (Cal. 2019).
Because a person who agrees to arbitrate disputes must
necessarily waive the right to bring civil actions regarding
those disputes in any other forum, AB 51 burdens the
defining feature of arbitration agreements.
    The burden imposed on the formation of arbitration
agreements is severe. AB 51 deters an employer from
including non-negotiable arbitration requirements in
employment contracts by imposing civil and criminal
sanctions on any employer who does so. See CAL. LAB.
CODE § 433 (providing that any person violating Article 3,
which includes § 432.6, is guilty of a misdemeanor); CAL.
GOV’T CODE § 12953 (“It is an unlawful employment
practice for an employer to violate Section 432.6 of the

intended to invalidate a written arbitration agreement that is otherwise
enforceable” under the FAA. A.B. 51, 2019 Leg. (Cal. 2019). Therefore,
we consider the more general principles of obstacle preemption,
specifically whether AB 51 “stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress” in
enacting the FAA. Hines, 312 U.S. at 67.
                  CHAMBER OF COMMERCE V. BONTA                        25

Labor Code.”). The threat of criminal and civil liabilities is
intended to have a deterrent effect, Nan S. Ellis & Steven B.
Dow, Attaching Criminal Liability to Credit Rating
Agencies: Use of the Corporate Ethos Theory of Criminal
Liability, 17 U. PA. J. BUS. L. 167, 173 (2014), and so it is
clear that the penalties imposed by AB 51 inhibit an
employer’s willingness to create an arbitration contract with
employees. 5
    Further, AB 51 “singles out arbitration provisions as an
exception” to generally applicable law. Saturn, 905 F.2d at
724. California law generally allows an employer to enter
into a contract with an employee that includes non-
negotiable terms as a condition of employment, including
requirements related to compensation, see Koehl v. Verio,
Inc., 142 Cal. App. 4th 1313, 1331 (2006), and drug usage,
see Ross v. RagingWire Telecomms., Inc., 42 Cal. 4th 920,
924 (2008). But under AB 51, an employer cannot enter into
a contract with non-negotiable terms essential to an
arbitration agreement. It is irrelevant that the non-negotiable
terms disapproved by AB 51 could also apply to other sorts
of contractual provisions (such as forum-selection clauses)
because “the Supreme Court has emphasized that the focus
should be on whether the statute, either on its face or as

5
  California challenges the district court’s factual finding that “AB 51
will likely have a deterrent effect on employers’ use of arbitration
agreements given the civil and criminal sanctions associated with
violating the law.” In making this finding, the district court relied on
declarations from leaders of the various trade associations and business
groups stating that members of their groups will have to change their
contracting processes to avoid civil and criminal penalties. Given the
substance of these declarations, and the common sense conclusion that
criminal penalties will have a deterrent effect on behavior, the district
court’s finding was not clearly erroneous.
26             CHAMBER OF COMMERCE V. BONTA

applied, imposes burdens on arbitration agreements that do
not apply to contracts generally.” Id. at 725; see also
Mortensen, 722 F.3d at 1159.
    AB 51’s deterrence of an employer’s willingness to enter
into an arbitration agreement is antithetical to the FAA’s
“liberal federal policy favoring arbitration agreements.”
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983); see Valle del Sol Inc. v. Whiting, 732 F.3d
1006, 1028 (9th Cir. 2013) (finding an Arizona immigration
statute subject to obstacle preemption in part because it
sought to punish conduct that Congress did not). Therefore,
AB 51’s penalty-based scheme to inhibit arbitration
agreements before they are formed violates the “equal-
treatment principle” inherent in the FAA, Kindred Nursing,
137 S. Ct. at 1426, and is the type of “device[]” or
“formula[]” evincing “hostility towards arbitration” that the
FAA was enacted to overcome, Concepcion, 563 U.S. at
342. Because the FAA’s purpose is to further Congress’s
policy of encouraging arbitration, and AB 51 stands as an
obstacle to that purpose, AB 51 is therefore preempted.
                              D
    We reject California’s arguments to the contrary. First,
California argues that because AB 51 regulates the conduct
of employers before an arbitration agreement is formed,
rather than affecting the validity or enforceability of the
executed arbitration agreement itself, it does not conflict
with the FAA. As we have explained, this argument fails.
Rules that impede parties’ ability to form arbitration
agreements hinder the broad “national policy favoring
arbitration,” Buckeye Check Cashing, 546 U.S. at 443, just
as much as those that undermine the enforceability of
already-existing arbitration agreements.
                CHAMBER OF COMMERCE V. BONTA                   27

    California also claims that AB 51 does not pose an
obstacle to the FAA because it is simply a prohibition against
“forced arbitration.” According to California, the legislature
enacted AB 51 “to ensure a measure of equity in employee-
employer relationships” by shielding employees from
involuntary contracts forced upon them by employers.
Absent such protection, California argues, employees could
be forced to sign arbitration agreements that are illegal, or an
employer could retaliate against even a long-term employee
who refused to sign. California argues that precluding
forced arbitration is consistent with Supreme Court
precedent, such as Stolt-Nielsen S.A. v. AnimalFeeds Int’l
Corp., 559 U.S. 662, 681 (2010), emphasizing that
arbitration is a matter of consent. Similarly, the dissent
asserts that AB 51 should not be preempted because
“arbitration is a matter of contract and agreements to
arbitrate must be voluntary and consensual,” and the
Supreme Court “has never held nor implied that employers
may require arbitration as a condition of employment.”
    There is no merit to these arguments, which
misunderstand basic principles of California contract law,
Supreme Court caselaw regarding consent in arbitration
cases, and AB 51 itself. Contrary to the arguments made by
California and the dissent, a contract may be “consensual,”
as that term is used in contract law, even if one party accepts
unfavorable terms due to some degree of unequal bargaining
power.
    It is a basic principle of contract law that a contract is not
enforceable unless there is mutual, voluntary consent. See,
e.g., CAL. CIV. CODE §§ 1565, 1567; Monster Energy Co. v.
Schechter, 7 Cal. 5th 781, 789 (2019); Morrill v.
Nightingale, 93 Cal. 452, 455 (1892). It has long been
established that parties to a contract are generally deemed to
28              CHAMBER OF COMMERCE V. BONTA

have consented to all the terms of a contract they sign, even
if they have not read it. See, e.g., Marin Storage & Trucking
Inc. v. Benco Contracting & Eng’g, Inc., 89 Cal. App. 4th
1042, 1049 (2001); Greve v. Taft Realty Co., 101 Cal. App.
343, 351–52 (1929). This is true even if the contract at issue
is an adhesion contract, defined by California courts as “a
standardized contract, which, imposed and drafted by the
party of superior bargaining strength, relegates to the
subscribing party only the opportunity to adhere to the
contract or reject it.” Neal v. State Farm Ins. Cos., 188 Cal.
App. 2d 690, 694 (1961). Despite unequal bargaining
power, “a contract of adhesion is fully enforceable according
to its terms unless certain other factors are present,” such as
when a provision “does not fall within the reasonable
expectations of the weaker or ‘adhering’ party” or when a
provision “is unduly oppressive or unconscionable.”
Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 819–20 (1981)
(per curiam) (cleaned up). And although adhesion contracts
do not fit the “classical model of ‘free’ contracting by parties
of equal or near-equal bargaining strength,” they are an
“inevitable fact of life for all citizens.” Id. at 817–818.
    Of course, mandatory arbitration provisions in
employment contracts of adhesion are not enforceable if the
provisions    are      procedurally      and     substantively
unconscionable, or otherwise unenforceable under generally
applicable contract rules. See OTO, L.L.C. v. Kho, 8 Cal. 5th
111, 125–26 (2019). Unequal bargaining power, “economic
pressure,” “sharp practices,” and “surprise” can help
establish procedural unconscionability. Id. at 126–29
(cleaned up). Moreover, if a party is forced to sign a contract
by threats or physical coercion, for instance, the contract
would lack mutual consent and be unenforceable “upon such
grounds as exist at law or in equity for the revocation of any
                  CHAMBER OF COMMERCE V. BONTA                         29

contract.” 9 U.S.C. § 2. AB 51 does nothing to change these
basic principles. And contrary to California’s arguments, a
ruling that the FAA preempts AB 51 does not create a “new
substantive right” for employers to mandate unconscionable
or illegal arbitration requirements.
    In short, under California law, an employee can
“consent” to an employment contract by entering into it,
even if the contract was a product of unequal bargaining
power and even if it contains terms (such as an arbitration
provision) that the employee dislikes, so long as the terms
are not invalid due to unconscionability or other generally
applicable contract principles. 6 Because the parties to a
contract are deemed to consent to its terms, the “basic
precept that arbitration ‘is a matter of consent, not
coercion,’” means only that courts must “ensure that ‘private
agreements to arbitrate are enforced according to their
terms’” even in the face of state laws imposing different
requirements on the contracting parties. Stolt-Nielsen, 559
U.S. at 681–82 (quoting Volt, 489 U.S. at 479).
    If the parties agreed to resolve a matter by arbitration,
“the FAA pre-empts state laws which ‘require a judicial

6
  California argues that AB 51 merely prevents employers from imposing
unconscionable and unenforceable terms of employment. But the FAA
is already inapplicable to unconscionable agreements. See Kindred
Nursing, 137 S. Ct. at 1426. Moreover, AB 51 is not as limited as
California suggests: it does not refer to unconscionable arbitration
provisions, but instead criminalizes the formation, or attempted
formation, of any basic agreement to arbitrate claims. See CAL. LAB.
CODE § 432.6(a). Thus, the argument that AB 51 regulates only
“unconscionable” agreements is simply an argument that arbitration
agreements are themselves unconscionable—an argument that reflects
the “hostility to arbitration that led Congress to enact the FAA.” Kindred
Nursing, 137 S. Ct. at 1428 (internal quotation marks omitted).
30             CHAMBER OF COMMERCE V. BONTA

forum for the resolution of [those] claims.’” Volt, 489 U.S.
at 478 (quoting Southland Corp., 465 U.S. at 10).
    This principle applies equally to employment contracts
and employment-related lawsuits. In upholding a contract
provision requiring arbitration of Age Discrimination in
Employment Act claims, the Supreme Court rejected the
argument that the agreement was invalid due to the “unequal
bargaining power between employers and employees.”
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32–
33 (1991). The Court stated that “[m]ere inequality in
bargaining power” is not a sufficient reason to refuse to
enforce an arbitration agreement in the employment context,
because “arbitration agreements are enforceable ‘save upon
such grounds as exist at law or in equity for the revocation
of any contract.’” Id. at 33 (quoting 9 U.S.C. § 2).
    Accordingly, there is no support for California’s
description of AB 51 as simply an assurance that employees
will not be the victims of forced arbitration or be compelled
to arbitrate claims against their wills. To the contrary, AB
51’s interference with the ability of the parties to agree to
arbitration stands as an obstacle to the “accomplishment and
execution of the full purposes and objectives of Congress,”
and “thus creates a scheme inconsistent with the FAA.”
Concepcion, 563 U.S. at 344, 352 (quotation marks omitted).
    Because all provisions of AB 51 work together to burden
the formation of arbitration agreements, we conclude that the
FAA preempts AB 51 as a whole to the extent it applies to
arbitration agreements. We reject California’s argument that
we could sever Section 433 of the California Labor Code
under the severability clause in Section 432.6(i), and then
                   CHAMBER OF COMMERCE V. BONTA                          31

uphold the balance of AB 51. 7 AB 51 provides no authority
to delete Section 433, because the severability clause in
Section 432.6(i) applies only to Section 432.6. Although,
under California law, the presence of a severability clause
“establishes a presumption” that “the invalid portions of a
statute can be severed,” Cal. Redevelopment Assn. v.
Matosantos, 53 Cal. 4th 231, 270 (2011), Section 433 is not
an invalid part of Section 432.6, and so this presumption
does not apply. In any event, we may not presume that the
California legislature would want to invalidate a generally
applicable provision such as Section 433. See id. at 270–71.
    The dissent’s proposal to sever Section 12953 of the
California Government Code, which imposes civil penalties
for a violation of Section 432.6 of the California Labor Code,
fails for the same reason. Because this section of the
Government Code is not a part of Section 432.6 of the
California Labor Code, the severability provision in Section
432.6(i) is inapplicable. Moreover, even if a court severed
Section 12953 of the Government Code, a violation of AB
51 would still be subject to criminal penalties. 8 Thus,

7
  Section 433 of the California Labor Code states: “Any person violating
this article [Article 3, Contracts and Applications for Employment] is
guilty of a misdemeanor.” CAL. LAB. CODE § 433.
Section 432.6(i) of the California Labor Code states: “The provisions of
this section [Section 432.6] are severable. If any provision of this section
or its application is held invalid, that invalidity shall not affect other
provisions or applications that can be given effect without the invalid
provision or application.” CAL. LAB. CODE § 432.6(i).
8
  Even if Section 433 of the California Labor Code (criminal penalties)
and Section 12953 of the California Government Code (civil penalties)
were both severable, we would disagree with the dissent’s suggestion
that the California legislature would have wanted a court to render AB
51 (Section 432.6) unenforceable by severing both provisions. See Cal.
32               CHAMBER OF COMMERCE V. BONTA

regardless whether AB 51 includes a civil penalty, it
“specially impede[s] the ability of [employers] to enter into
arbitration agreements” and “flout[s] the FAA’s command
to place those agreements on an equal footing with all other
contracts.” Kindred Nursing, 137 S. Ct. at 1429.
                                IV
    Because AB 51 is preempted by the FAA, the district
court correctly held that the Chamber of Commerce is likely
to succeed on the merits of its claim for declaratory and
injunctive relief. And because California does not challenge
the district court’s holding that the remaining factors also
weigh in favor of the Chamber of Commerce, we hold that
the district court did not abuse its discretion when it granted
the Chamber of Commerce’s motion for a preliminary
injunction.
     AFFIRMED.

LUCERO, Circuit Judge, dissenting:

     Since the 1990s, employers have increasingly utilized
arbitration agreements to provide an alternative to court
litigation. See Alexander J.S. Colvin, The Growing Use of
Mandatory Arbitration, Econ. Pol’y Inst. (Apr. 6, 2018),
https://files.epi.org/pdf/144131.pdf. In the first of the
relevant Supreme Court cases, the Court considered whether
the Federal Arbitration Act (FAA) preempted state law, and
concluded that it did not. Volt Info. Scis., Inc. v. Bd. of Trs.

Redevelopment Ass’n, 53 Cal. 4th at 271. Indeed, California does not
argue that Section 12953 should be severed.
                CHAMBER OF COMMERCE V. BONTA                 33

of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989).
Addressing consent to arbitrate, the Court stated:
“Arbitration under the [FAA] is a matter of consent, not
coercion . . . .” Id. In all the cases that have followed, the
Court has repeatedly emphasized that “the first principle that
underscores all of our arbitration decisions is that arbitration
is strictly a matter of consent.” Lamps Plus, Inc. v. Varela,
139 S. Ct. 1407, 1415 (2019) (cleaned up); see also Oxford
Health Plans LLC v. Sutter, 569 U.S. 564, 574 (2013) (Alito,
J., concurring); Granite Rock Co. v. Int’l Bhd. of Teamsters,
561 U.S. 287, 299 (2010); Stolt-Nielsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010).
    The jurisprudence surrounding the FAA’s preemptive
scope has grown on the precedential trellis of these basic
principles. Each time the Supreme Court has clarified the
preemptive scope of the FAA, it has done so by ruling on the
enforceability or validity of executed agreements to
arbitrate, explaining that the FAA does not preempt the
entire field of arbitration. Volt, 489 U.S. at 477. The Court
has never held nor implied that employers may require
arbitration as a condition of employment. Today my
respected colleagues in the majority directly depart from the
foregoing fundamental principles and nullify a California
law codifying what the enactors of the FAA and the Supreme
Court took as a given: arbitration is a matter of contract and
agreements to arbitrate must be voluntary and consensual.
    California Assembly Bill 51 (AB 51), the California
statute at issue, operates in a substantively different manner
than state rules previously struck down as preempted by the
FAA. Unlike the state statutes in Kindred Nursing Centers
Ltd. P’ship v. Clark, 581 U.S. 246 (2017) and Doctor’s
Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996), which
directly invalidated arbitration agreements, AB 51 regulates
34                CHAMBER OF COMMERCE V. BONTA

conduct preceding arbitration agreements. AB 51 ensures
that arbitration agreements are entered on fair terms yet does
not go so far as to invalidate arbitration agreements that are
not. In enacting AB 51, California maintains respect for
federal preemption over arbitration agreements while
appropriately addressing state concerns with unfair
employment negotiations. My colleagues’ application of
Kindred Nursing and Casarotto to AB 51 improperly
expands prior jurisprudence. Thus, I must respectfully
dissent. 1
                                    I
    Section 1 of AB 51 declares that “it is the policy of this
state to ensure that all persons have the full benefit of the
rights, forums, and procedures established in the California
Fair Employment and Housing Act . . . and the Labor Code.”
2019 Cal. Stats. Ch. 711 (AB 51). Pursuant to this policy,

1
  I agree with my colleagues that the imposition of civil and criminal
sanctions for the act of executing an arbitration agreement directly
conflicts with the FAA and such an imposition of sanctions is indeed
preempted. I therefore concur with the majority as to the application of
Labor Code § 433 and Government Code § 12953 to arbitration
agreements covered by § 1 of the FAA.
     However, I would find those sections severable from other
provisions of AB 51. Under California law, “[t]he presence of [a
severability] clause establishes a presumption in favor of severance,” if
the invalid portion is “grammatically, functionally, and volitionally
separable.” Cal. Redev. Ass’n v. Matosantos, 53 Cal. 4th 231, 270
(2011). AB 51 has a severability clause. Cal. Lab. Code § 432.6(i). AB
51’s imposition of criminal sanctions is distinct from the other provisions
because it was set aside in a separate section and operates in a different
portion of California Code. Also, the legislature’s clear intent was
protection of consent to enter contracts, so it would have adopted the
provision discussed here even if the sanctions were invalidated. Thus, I
would find those sections severable.
               CHAMBER OF COMMERCE V. BONTA                35

AB 51 was enacted with the “purpose of . . . ensur[ing] that
individuals are not retaliated against for refusing to consent
to the waiver of those rights and procedures and to ensure
that any contract relating to those rights and procedures be
entered into as a matter of voluntary consent, not coercion.”
Id. Arbitration is not singled out by AB 51. Rather, it covers
a range of waivers, including non-disparagement clauses and
non-disclosure agreements. In short, AB 51 protects persons
entering all employment contracts from coercion to waive
their rights as employees.
                             II
                              A
    As the majority indicates, only obstacle preemption is
relevant to the present appeal. See Volt, 489 U.S. at 477.
Under obstacle preemption, a state statute or rule is
preempted if it “stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of
Congress.” AT&T Mobility LLC v. Concepcion, 563 U.S.
333, 352 (2011) (quoting Hines v. Davidowitz, 312 U.S. 52,
67 (1941)); see also Ryan v. Editions Ltd. W., Inc., 786 F.3d
754, 761 (9th Cir. 2015). State laws that merely overlap but
do not obstruct federal statutes are not preempted. In re
Volkswagen “Clean Diesel” Mktg., Sales Pracs. & Prod.
Liab. Litig., 959 F.3d 1201, 1213 (9th Cir. 2020).
     Broadly, “[t]he principal purpose of the FAA is to ensure
that private arbitration agreements are enforced according to
their terms.” Concepcion, 563 U.S. at 344 (cleaned up).
Rules that selectively interfere with the enforcement of
arbitration agreements are therefore preempted by the FAA.
A state rule may also stand as an obstacle to the FAA through
“subtle methods” that “interfer[e] with fundamental
attributes of arbitration.” Lamps Plus, 139 S. Ct. at 1418
36             CHAMBER OF COMMERCE V. BONTA

(quoting Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1622
(2018)). Determination of whether a particular state statute
constitutes an obstacle requires the court to “examin[e] the
federal statute as a whole and identify[] its purpose and
intended effects” and then compare it to the subject matter
of the state statute. Crosby v. Nat’l Foreign Trade Council,
530 U.S. 363, 373 (2000).
                              B
    Review of the historical context of the FAA, its
legislative history, and subsequent Supreme Court
jurisprudence demonstrates that Congress was focused on
the enforcement and validity of consensual written
agreements to arbitrate and did not intend to preempt state
laws requiring that agreements to arbitrate be voluntary.
Congress passed the FAA “to overrule the judiciary’s
longstanding refusal to enforce agreements to arbitrate.”
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20
(1985). Decades prior to the FAA, “courts considered
agreements to arbitrate unenforceable executory contracts”
and breaching an agreement to arbitrate generally only
“resulted in nominal legal damages.” Kristen M. Blankley,
Impact Preemption: A New Theory of Federal Arbitration
Act Preemption, 67 Fla. L. Rev. 711, 719 (2015). This
refusal to enforce arbitration agreements stemmed from
English common law doctrines, including “revocability,”
which allowed a party to withdraw their consent to arbitrate
at any time prior to the arbitrator’s ruling. See David
Horton, Federal Arbitration Act Preemption, Purposivism,
and State Public Policy, 101 Geo. L.J. 1217, 1225 (2013). In
the years preceding the passage of the FAA, revocability and
similar doctrines fell out of favor. Id. at 1225-26; see also
Meacham v. Jamestown, F. & C.R. Co., 211 N.Y. 346, 354
(1914) (Cardozo, J., concurring) (“It is true that some judges
               CHAMBER OF COMMERCE V. BONTA                 37

have expressed the belief that parties ought to be free to
contract about such matters as they please. In this state the
law has long been settled to the contrary.”). Congress thus
passed the FAA in the context of increasing focus on parties’
agreement and consent to arbitrate.
    Securing the validity and enforceability of consensual
arbitration agreements was precisely what Congress
intended to achieve through the FAA. The House Report
accompanying the FAA declared: “The purpose of this bill
is to make valid and enforcible [sic] agreements for
arbitration contained in contracts involving interstate
commerce or within the jurisdiction [of] admiralty, or which
may be the subject of litigation in the Federal courts.” H.R.
Rep. No. 68-96, at 1 (1924). The Senate Report agreed,
describing the purpose of the statute as “[t]o make valid and
enforceable written provisions or agreements for arbitration
of disputes arising out of contracts, maritime transactions, or
commerce among the States or Territories or with foreign
nations.” S. Rep. No. 68-536, at 1 (1924). The House
Report makes explicit that the FAA was laser-focused on
ensuring that people who agreed to arbitrate a dispute were
held to their word:

       Arbitration agreements are purely matters of
       contract, and the effect of the bill is simply to
       make the contracting party live up to his
       agreement. He can no longer refuse to
       perform his contract when it becomes
       disadvantageous to him.

H.R. Rep. No. 68-96, at 1.
   In the almost-century since the FAA became law, the
Supreme Court has expounded on the congressional purpose
38             CHAMBER OF COMMERCE V. BONTA

animating its passage, explaining that it signified “a
congressional declaration of a liberal federal policy favoring
arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary.” Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983). The Court has reiterated this principle time and
again over the years, and each time, without fail, it has noted
that the FAA enshrined the enforceability and validity of
consensual, written agreements to arbitrate disputes.
See Epic Sys. Corp., 138 S. Ct. at 1621; Am. Exp. Co. v.
Italian Colors Rest., 570 U.S. 228, 233 (2013); Concepcion,
563 U.S. at 344; Volt, 489 U.S. at 478; Dean Witter
Reynolds, 470 U.S. at 219. Thus, Congress’ clear purpose
was to ensure the validity and enforcement of consensual
arbitration agreements according to their terms.
    AB 51’s purpose matches the FAA’s purpose. The clear
language of the FAA and those cases neither state nor imply
that an employer may compel arbitration as a condition of
employment, as the majority declares. Instead, the FAA’s
history, legislative purpose, and caselaw all demonstrate its
intention to honor agreements freely agreed to according to
the terms voluntarily submitted to by both parties. AB 51
advances that purpose. AB 51 ensures contracts are “entered
into as a matter of voluntary consent, not coercion.” 2019
Cal. Stats. Ch. 711. This does not form an obstacle to the
FAA’s purpose of ensuring consensual agreements are
honored. I would find that AB 51 overlaps but does not
obstruct the FAA and thus is not preempted.
                              C
    In determining otherwise, the majority relies largely on
Kindred Nursing and Casarotto. These cases concerned
preemption of state rules invalidating executed arbitration
               CHAMBER OF COMMERCE V. BONTA                 39

agreements. The majority would apply the principles of
those cases to AB 51, which addresses pre-agreement
conduct and does not invalidate executed arbitration
agreements. That reasoning would be persuasive if either (1)
AB 51 regulated the enforcement or validity of executed
arbitration agreements or (2) Kindred Nursing or Casarotto
addressed regulation of pre-agreement conduct as preempted
by the FAA. Yet neither condition is met.
    AB 51 could not be more precise or explicit: “[n]othing
in this section is intended to invalidate a written arbitration
agreement that is otherwise enforceable under the Federal
Arbitration Act.” Cal. Lab. Code § 432.6(f). In this way,
the California Act regulates the method of entering into the
arbitration agreement. Its purpose is addressing the conduct
that takes place prior to the existence of an agreement, as
opposed to dealing with the enforcement of an arbitration
clause in an agreement. In contrast, Kindred Nursing and
Casarotto address state rules that render executed arbitration
agreements themselves invalid or unenforceable. Neither
address rules regulating pre-agreement behavior.
    Kindred Nursing considers a clear statement rule
announced by the Kentucky Supreme Court. 581 U.S. at
250. Before that court were two arbitration agreements
executed by individuals who were authorized through
powers of attorney to act on behalf of others. Id. at 248-50.
At least one authorization was broad enough to incorporate
entering into an arbitration agreement. Id. at 250. Despite
this, the Kentucky Supreme Court invalidated the arbitration
agreements. It explained that “the jury guarantee is the sole
right the Kentucky Constitution declares sacred and
inviolate,” and, as such, “an agent could deprive her
principal of an adjudication by judge or jury only if the
power of attorney expressly so provided.” Id. (cleaned up).
40             CHAMBER OF COMMERCE V. BONTA

On review, the Court reversed the Kentucky Supreme Court,
concluding that the clear statement rule is preempted by the
FAA because it “relie[s] on the uniqueness of an agreement
to arbitrate as its basis,” and “fails to put arbitration
agreements on an equal plane with other contracts.” Id. at
251-52 (cleaned up). The Court declared that the FAA
addresses not only enforcement, but also validity, of
contracts:

       By its terms, then, the Act cares not only
       about the “enforce[ment]” of arbitration
       agreements, but also about their initial
       “valid[ity]”—that is, about what it takes to
       enter into them. Or said otherwise: A rule
       selectively finding arbitration contracts
       invalid because improperly formed fares no
       better under the Act than a rule selectively
       refusing to enforce those agreements once
       properly made.

Id. at 254-55. That is not the case at bar.
    The majority relies on this passage to conclude that FAA
preemption “also extends to state rules that discriminate
against the formation of arbitration agreements.” By its own
terms, and in its own words, the Supreme Court disavows
the majority’s reliance on such reasoning: “[our decision]
falls well within the confines of (and goes no further than)
present well-established law.” Id. at 255 (quotation and
citation omitted). Nothing in the present well-established
law purports to do what the majority does today. As in
previous cases, the Court was focused on addressing “rule[s]
selectively finding arbitration contracts invalid because
improperly formed.” Id. at 254-55. In other words, in
                CHAMBER OF COMMERCE V. BONTA                 41

Kindred Nursing, the Court only addressed pre-agreement
behavior to the extent that it challenged the validity of
executed contracts. The situation in this case differs, as AB
51 does not impact the validity of the contracts executed
under the prohibited pre-agreement behavior.
    It is simply not the case, as the majority alleges, that the
Supreme Court dramatically expanded the preemptive scope
of the FAA in dicta—especially considering this dicta is
nestled within language that explicitly references executed
arbitration agreements. See id. The broader context of
Kindred Nursing demonstrates its accord with the text of the
FAA, which mandates that a written agreement to arbitrate
“shall be valid, irrevocable, and enforceable.” 9 U.S.C. § 2.
The majority expands the scope of the FAA beyond its text
in concluding that the Supreme Court recognizes FAA
preemption for instances in which there is no question of the
validity of the arbitration agreement. Respectfully, the
majority declares for the Court a holding that the Kindred
Nursing Court itself disavowed in handing down its
decision.
    For similar reasons, Casarotto does not support the
majority’s conclusion. Casarotto considered a Montana
statute that “declared an arbitration clause unenforceable
unless notice that the contract is subject to arbitration is
typed in underlined capital letters on the first page of the
contract.” 517 U.S. at 683 (quotation omitted and alterations
adopted). The Court held the statute was preempted by the
FAA, concluding it “directly conflicts with § 2 of the FAA
because the State’s law conditions the enforceability of
arbitration agreements on compliance with a special notice
requirement not applicable to contracts generally.” Id. at
687. Casarotto exemplifies preemption of a state rule
addressing the validity of an executed arbitration agreement.
42                CHAMBER OF COMMERCE V. BONTA

It does not support the majority’s argument that the FAA
preempts state regulation of pre-agreement behavior when
the validity of the arbitration agreement is not in question. 2
                                   III
    My colleagues misconstrue the jurisprudence of the
Court. At the end of the last century, mandatory arbitration
was utilized to resolve employer-employee disputes for
approximately 2% of nonunion employers. See Alexander
J.S. Colvin, The Growing Use of Mandatory Arbitration,
Econ. Pol’y Inst. (Apr. 6, 2018), https://files.epi.org/pdf/
144131.pdf.       By 2018, that number had grown to
approximately 56%. Id. My colleagues’ misinterpretation
leaves state legislatures powerless to ensure that arbitration
clauses in these employment agreements are freely and
openly negotiated. Moreover, courts are potentially left with
an increasingly diminished role, or no role at all, in
employer-employee disputes. This would effectively freeze
the evolution of precedent for employment principles and
law, and give employers unmitigated power to mandate the
arbitration of all employer-employee disputes as a condition

2
  The two non-binding cases from other circuits cited by the majority are
similarly unavailing. The Massachusetts statute in Sec. Indus. Ass’n v.
Connolly only targeted arbitration agreements and appellants conceded
as much to the district and circuit court. 883 F.2d 1114, 1120 (1st Cir.
1989). Similarly, the Virginia statute in Saturn Distrib. Corp. v. Williams
voided all nonnegotiable arbitration agreements in automobile franchise
agreements. 905 F.2d 719, 724 (4th Cir. 1990). These state laws are
squarely preempted by the FAA because they single out arbitration
clauses and void them. In contrast, AB 51 covers a range of waivers,
including non-disparagement clauses and non-disclosure agreements,
and does not void any past, present, or future arbitration agreement.
              CHAMBER OF COMMERCE V. BONTA              43

of employment. I cannot join such a sweeping interpretation
of the FAA. I accordingly dissent.