Federal Court Blocks AB 51, Which Banned Mandatory Employee Arbitration Agreements in California

On December 30, 2019, a federal district court granted a temporary restraining order requested by several business groups, to prevent AB 51, which banned mandatory arbitration agreements in California, from taking effect.

Background on AB 51

On October 10, 2019, Governor Newsom signed into law AB 51, which prohibits employers from entering into mandatory arbitration agreements for nearly all types of employment law claims in California. AB 51 prohibits employers from requiring an applicant or employee to waive any right, forum or procedure for employer violations of the California Fair Employment and Housing Act (FEHA) and the California Labor Code, which includes the right to file a civil lawsuit in court. The bill also prohibits retaliation and discrimination against an applicant or employee who refuses to sign such an agreement. This meant that starting on January 1, 2020, employers would have been prohibited from requiring employees to sign arbitration agreements as a condition of employment.

AB 51 was always of questionable legality. In 2018, Governor Brown vetoed a virtually identical bill stating that it “plainly violates federal law,” referring to the Federal Arbitration Act, under which the U.S. Supreme Court has repeatedly struck down state laws that unduly restrict arbitration.

Federal Court Lawsuit

On December 9, 2019 a coalition of employer groups filed a lawsuit in federal court to block AB 51 from taking effect. On December 30, 2019, U.S. District Judge Kimberly Mueller granted the plaintiffs’ request for a temporary restraining order, thereby blocking AB 51’s implementation, at least for now. Judge Mueller’s order noted that the “plaintiffs have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court.”

The order also noted that the plaintiffs’ “argument that allowing the statute to take effect even briefly, if it is preempted, will cause disruption in the making of employment contracts is also persuasive.” The Court therefore temporarily enjoined the California Attorney General and other state officials from enforcing AB 51.

What This Means for California Employers

The granting of this temporary restraining order means that as of this writing (January 3, 2020), California employers may continue requiring employees to sign mandatory arbitration agreements as a condition of employment, and may refuse to hire, or terminate, an employee who refuses to sign one.

Employers should follow this case closely and pay attention to upcoming developments to ensure they are in compliance with the current state of employment arbitration law.

The judge set a hearing for January 10 to consider the employer groups’ motion for a preliminary injunction, which if granted could further delay AB 51’s implementation.

I will continue to post updates on this case here on this blog.