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Arizona’s Seldom Discussed Statutory Prohibition of Arbitration Agreements Between Employers and Employees

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There has been much publicity recently regarding a series of states enacting state statutes intended to restrict or prohibit mandatory arbitration agreements in the employment context. The most recent such endeavor to be highly publicized is California’s A.B. 51, which arguably prohibits employers from making arbitration agreements a condition of offered or continued employment.

As with other such efforts in other states, A.B. 51 was quickly enjoined from going into effect by a federal court, finding that the state statute was preempted by the Federal Arbitration Act (“FAA”). Similar orders have been entered by federal and state courts in Kentucky, New York, and Washington State, following the enactment of similar anti-arbitration statutes in those states.

Receiving much less notoriety is the fact that Arizona, normally viewed as a “pro-employer” state for employment law purposes, has had a state statute on its books since at least 1962 (i.e. almost 50 years) that expressly prohibits the enforcement of arbitration agreements between employers and employees. This prohibition was most recently re-enacted by the Arizona Legislature in 2011.  See A.R.S.  § 12-3003 (2011).

Unlike the recent California Legislature’s attempt at restricting mandatory arbitration agreements between employer and employees, this nearly 50-year old Arizona statute has never been enjoined from being enforced. Indeed, as recently as 2017, the Arizona Appellate Court enforced this Arizona statute under the following circumstances. Even though the employer seeking to compel enforcement of the employment arbitration agreement had argued at the trial court level that the Arizona statute is preempted by the FAA, its Motion to Compel Arbitration was denied. The Court of Appeals affirmed the denial, holding that the FAA applies only to employers engaged in interstate commerce and that the employer in that case had failed to plead and prove at the trial court level that it was engaged in interstate commerce. See Shield Security, LLC v. Lionheart Security LLC, 2017 WL 4897460.

Two conclusions are in order:  (1)  Arizona is one of the few (only?) states to have on its books a statute prohibiting arbitration agreements between employers and employees; and (2) in order to avoid the application of this archaic statute, litigants need to ensure that they plead in their initial pleadings, and offer some proof, that the employer in question is engaged in interstate commerce.