California recently enacted Assembly Bill 51 (AB 51), a state law that limits the use of workplace arbitration agreements. AB 51 was set to go into effect on January 1, 2020. In December, a local coalition of businesses led by the U.S. Chamber of Commerce challenged the bill, arguing that it is preempted by the Federal Arbitration Act. On December 29, 2019, just days before AB 51 was scheduled to go into effect, U.S. District Judge Kimberly Mueller granted a temporary restraining order, temporarily preventing AB 51’s enforcement.
What is AB 51?
AB 51 bans businesses from requiring applicants or employees to “waive any right, forum, or procedure” under the California Fair Employment and Housing Act or the California Labor Code as a condition of employment or continued employment or to receive benefits. AB 51 was introduced as a bill to protect against sexual harassment in response to the #MeToo movement, and proponents argue that it will protect employees by ensuring that arbitration agreements are entered into voluntarily. Meanwhile, the California Chamber of Commerce has labeled AB 51 as a “job killer” due to significantly increased costs employers will face as a result of more litigation and the expense of delayed dispute resolutions.
Why Has AB 51 Been Halted?
The U.S. Supreme Court has held that federal law preempts state law regarding the formation and enforcement of arbitration agreements. In fact, former California Governor Jerry Brown has vetoed bills similar to AB 51 in the past due to concerns about federal pre-emption. In this case, U.S. District Judge Kimberly Mueller held that serious questions were raised by the plaintiffs “regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court.” In her order, the Judge explained that a temporary injunction is necessary because even briefly allowing AB 51 would “cause disruption in the making of employment contracts, particularly given the criminal penalties to which violations of the law may be exposed.”
What Will Happen Next?
On January 10, 2020, the Court will hear the plaintiffs’ motion for a preliminary injunction. If the preliminary injunction is granted, AB 51 will not be enforced until the case is decided on the merits. Employers should closely monitor the enforcement of this law, as any violation of AB 51 carries the threat of criminal penalties in addition to damages.