On Friday, December 6, 2019, a coalition of national and state trade associations filed suit in California federal court seeking to strike down the state’s recently enacted “anti-arbitration” law, A.B. 51.1 A.B. 51 effectively prohibits the formation and use of pre-dispute arbitration agreements in the employment setting. The California state legislature passed the bill earlier this year, and Governor Gavin Newsom (D) signed it into law on October 10, 2019. The law is scheduled to go into effect on January 1, 2020, but the business groups will be asking the court to issue a preliminary injunction preventing the law from taking effect.

More specifically, A.B. 51 prohibits employers from requiring applicants or employees to waive any right, forum, or procedure established by the California Fair Employment and Housing Act and the state Labor Code. The law applies to “contracts for employment entered into, modified, or extended on or after January 1, 2020.” The stated purpose of AB 51 is to ensure that any contract relating to those rights and procedures be entered into voluntarily and without coercion. Due to its particular placement in the Labor Code, violation of the law will constitute a criminal act.

In challenging the law, the trade associations argue that California’s state law is preempted by the Federal Arbitration Act (FAA), the federal law that governs the use of arbitration in employment disputes. The FAA has consistently been interpreted by courts to favor and promote the use of arbitration, and its preemptive scope is thus very broadly construed. The plaintiffs ask the court to declare A.B. 51 unconstitutional, enjoin its enforcement by the state of California, and grant such other relief and costs as the court deems just.

Though an initial ruling on a preliminary injunction motion is anticipated, the fate of A.B. 51 may not be decided by the court for some time. Due to the complexity of this issue and the wide variety of arbitration programs that are in effect and could be contemplated in California workplaces, businesses with operations in the Golden State should consult with employment law counsel to determine whether any changes are required to employment arbitration programs.