January 09, 2020 Practice Points

California Arbitration Statute Is Temporarily Enjoined

The court stated that the temporary restraining order was justified due to the disruption the law would have on the formation of employment contracts.

By David L. Evans and Mitchell L. Marinello

In 2019, California passed law Assembly Bill 51 (AB 51) which, in essence, prohibits businesses from requiring employees to enter into arbitration agreements as a condition of their employment. 

The way AB 51 works is that it prohibits employers from requiring any person, as a condition of employment, continued employment, or the receipt of any employment benefit from waiving any right, forum, or procedure for a violation of certain California employment and housing laws. These non-waivable rights include “the right to file and pursue a civil action or a complaint. . .”  AB 51. The California law characterizes provisions that require an employee to “opt-out” or take other affirmative action to preserve the employee’s non-waivable rights as prohibited conditions of employment. Proponents of the new law argue that it is not a ban or limitation on arbitration but rather a regulation of employers and employment practices. Opponents argue that it is simply another step in California’s long-standing effort to skirt federal arbitration law. 

On December 6, 2019, the U.S. and California Chambers of Commerce filed a lawsuit challenging the validity of AB 51 and arguing that it is preempted by the Federal Arbitration Act. On December 29, 2019, the United States District Court for the Eastern District of California enjoined enforcement of AB 51 while the court rules on the plaintiffs’ motion for a preliminary injunction. Citing Kindred Nursing v. Clark, the District Court ruled that the plaintiffs had raised enough questions about preemption to justify the temporary restraining order. The court also stated that preventing the law from taking effect was justified due to the disruption the law would have on the formation of employment contracts and the fact that the plaintiffs had no adequate remedy at law.

The motion for preliminary injunction is set for hearing on January 10, 2020.

David L. Evans is a shareholder at Murphy & King in Boston, Massachusetts, and Mitchell L. Marinello is a partner at Novack and Macey LLP in Chicago, Illinois.

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