Since Oct. 11, 2019, we have been blogging about California’s new anti-arbitration law and the injunctive action filed before Chief District Judge Kimberly J. Mueller to enjoin it. Chamber of Commerce of the United States of America v. Bacerra, No. 2:19-cv-02456 (E.D. Cal.). See our blog articles of Oct. 11, 2019, Dec. 30, 2019 and Jan. 16, 2020.

Judge Mueller filed a Minute Order Friday granting the motion for preliminary injunction but will follow up “[i]n the coming days” with “a detailed, written order.” The Minute Order states, in pertinent part:

  1. Defendant Xavier Becerra, in his official capacity as the Attorney General of the State of California, Lilia Garcia Brower, in her official capacity as the Labor Commissioner of the State of California, Julie A. Su, in her official capacity as the Secretary of the California Labor and Workforce Development Agency, and Kevin Kish, in his official capacity as Director of the California Department of Fair Employment and Housing are:

a. Enjoined from enforcing sections 432.6(a), (b) and (c) of the California Labor Code where the alleged “waiver of any right, forum, or procedure” is the entry into an arbitration agreement covered by the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (“FAA”); and

b. Enjoined from enforcing section 12953 of the California Government code where the alleged violation of “Section 432.6 of the Labor Code” is entering into an arbitration agreement covered by the FAA.

  1. There is no realistic likelihood of harm to defendants from preliminarily enjoining enforcement of AB 51, so no security bond is required. It is so ordered. (Emphasis added).

Minute Order of Jan. 31, 2020 (Docket No. 44).

In summary, the judge’s order enjoins enforcement of the three main provisions of A.B. 51:

  1. An employer shall not require execution of an arbitration agreement as a condition of employment;
  2. An employer shall not threaten, retaliate, discriminate against, or terminate any applicant for employment due to the employee’s refusal to consent to arbitration; and,
  3. It is an unlawful employment practice for an employer to violate the two above-listed prohibitions.

These provisions are described in greater detail below.

Impact of A.B. 51 on California Employment Law

The challenged legislation would have broad impact on California employment law and arbitration agreements. It added Section 432.6 to the California Labor Code prohibiting employers from requiring any employee or applicant to “waive any right, forum or procedure for a violation of any provision” of FEHA or the entire Labor Code, including “the right to file and pursue a civil action” in “any court,” “as a condition of employment, or the receipt of any employment-related benefit.” Cal. Lab. Code § 432.6(a).

Section 432.6 declares agreements that allow employees to “opt out of a waiver or take any affirmative action in order to preserve their rights” actually impose a condition of employment. See Cal. Lab. Code § 432.6(c). So, voluntary opt-out procedures are treated as if they were involuntary.

Under the Labor Code, businesses that violate these restrictions are guilty of a misdemeanor (Cal. Lab. Code § 433), punishable by imprisonment not exceeding six months or a fine not exceeding $1,000, or both (Cal. Lab. Code § 23). Individuals who prevail in an action enforcing their rights under Section 432.6(d) will be entitled to injunctive relief and attorneys’ fees. Cal. Lab. Code § 432.6(d).

A.B. 51 also amends the California Fair Employment and Housing Act (FEHA) by adding Section 12953, which provides that any violation of Section 432.6 in the Labor Code will be an “unlawful employment practice” under FEHA, Cal. Gov’t Code § 12953, providing an additional and distinct administrative remedy (and a separate private right of action) for any violation of Labor Code section 432.6.

These are some of the areas of California law potentially impacted by A.B. 51 and now protected by the Court’s Minute Order to the extent that the activity is covered by the FAA. When Judge Mueller hands down her detailed written order, we will update this article. Finally, we expect that the Defendants will challenge any action the district court takes to delay the effective date of A.B. 51. And, the proper scope of the FAA will no doubt be addressed by the Ninth Circuit in the future.

Bottom Line:

The District Court has now issued a preliminary injunction enjoining Defendants from enforcing the most injurious portions of this anti-arbitration law. But this is only an early chapter in this dispute over A.B. 51.