A federal judge recently granted a preliminary injunction to block the State of California from enforcing AB 51 which prohibits employers from using mandatory arbitration agreements “covered by” the Federal Arbitration Act (“FAA”). On Friday, January 31, 2020, Judge Kimberly J. Mueller of the United States District Court, Eastern District, issued the injunction for the duration of the court proceedings after previously issuing a Temporary Restraining Order (TRO) on December 30, 2019. Judge Mueller held that the AB 51 ban on the use of mandatory arbitration agreements raised serious concerns regarding whether the law is preempted by the FAA.
AB 51 (now Labor Code Section 432.6) prohibits an employer from requiring an employee to sign a mandatory arbitration agreement as a condition of employment or continued employment and imposes sanctions, which includes the imposition of a misdemeanor, for violations of the law. The law applies to all agreements entered into after January 1, 2020, and expressly provides that it is not “intended to invalidate a written arbitration agreement that is enforceable under the (FAA).” Business groups lead by the U.S. Chamber of Commerce challenged the new law, in part, on the basis it is preempted by the FAA.
A more detailed ruling regarding the preliminary injunction is expected from Judge Mueller in the next few days. The injunction will remain in effect until the litigation concludes. In the meantime, California employers may continue to use mandatory arbitration agreements covered by the FAA. While the final determination on the validity of Labor Code Section 432.6 is pending, employers are encouraged to consult counsel in revising existing mandatory arbitration agreements or drafting new arbitration agreement to ensure they comply with applicable law.