Court Temporarily Halts California’s New Ban on Mandatory Employment Arbitration Agreements

By editor on February 20, 2020

On February 6, 2020, in Chamber of Commerce of the United States of America, et al. v. Xavier Becerra, et al., United States District Judge Kimberly J. Mueller of the Eastern District of California granted a motion for a preliminary injunction enjoining the enforcement of California Assembly Bill 51 (“AB 51”), which prohibits California employers from requiring prospective and current employers to “waive any right, forum, or procedure” for a violation of the California Fair Employment and Housing Act (“FEHA”) or the California Labor Code. AB 51 was set to take effect on January 1, 2020, but the court temporarily restrained state officials from enforcing the law pending a full preliminary injunction hearing. The controversial language of the new law provides that: “A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefits, require any applicant for employment or any employee to waive any right…including the right to file and pursue a civil action or a complaint with, or otherwise notify, any stated agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation.”

In December, 2019, a coalition of national and state trade associations filed suit to enjoin AB 51 from taking effect. At the heart of the dispute is whether the Federal Arbitration Act (“FAA”) preempts AB 51. The FAA provides that arbitration agreements are “valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for revocation of any contract.” (9 U.S.C. § 2.) The plaintiffs sought a preliminary injunction to ensure that businesses seeking to enter into federally protected arbitration agreements would not be irreparably harmed by civil and, potentially, criminal enforcement of the new law. In granting the plaintiffs’ motion for a preliminary injunction, the court found that (1) the plaintiffs had met their burden of showing that they are likely to succeed on the merits of their claim that AB 51 is preempted by the FAA because it discriminates against arbitration and interferes with the FAA’s objectives; and (2) that the plaintiffs would likely suffer “irreparable harm” if AB 51 takes effect.

As a practical matter, the court’s order only bars the state from enforcing AB 51’s anti-arbitration provisions while the parties seek a permanent ruling on the preemption issue.