Beginning January 1, 2020, California law (known as AB 51) makes it a criminal misdemeanor for employers to require arbitration as a condition of employment. The law specifically prohibits mandatory arbitration of claims under the California Fair Employment and Housing Act (such as for discrimination, harassment, and retaliation) and claims for violations of the California Labor Code (such as for wage payment violations). AB 51 now has been temporarily enjoined pending a preliminary injunction hearing scheduled for January 10, 2020.
On December 6, 2019, the U.S. and California Chambers of Commerce and other national and state organizations filed a lawsuit against the State of California to block AB 51, asserting that this new law is preempted by the Federal Arbitration Act. (United States v. Becerra, Case No. 2:19-cv-2456 KJM DB.) In response to the plaintiff’s request for injunctive relief, the United States District Court for the Eastern District of California filed its Order on December 30, 2019, which prohibits California authorities from enforcing AB 51 until the Court decides whether to issue a preliminary injunction. That hearing is scheduled for January 10, 2020. Courts rarely issue such temporary restraining orders, and they do so only if the plaintiff appears likely to succeed on the merits. In issuing this injunction, the Court explained that in this case, “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.”
During the period of the injunction, California employers can continue to use valid arbitration agreements as a required condition of employment, but should closely monitor these legal developments and consult with counsel about the advantages and disadvantages of employment arbitration agreements, including how best to draft and implement them.