A federal court in California has prevented, at least for now, an expansive anti-arbitration law from taking effect on January 1, 2020. Under Assembly Bill (AB) 51, enacted on October 10, 2019, employers cannot require applicants, employees, and potentially independent contractors in the Golden State to waive any right, forum, or procedure established by the California Fair Employment and Housing Act and the Labor Code. Earlier this month, a coalition of national and state trade associations filed suit to enjoin the law from taking effect.1 The court granted the plaintiffs’ motion for a temporary restraining order on December 30, 2019.
The trade associations argue that AB 51 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.
In its order agreeing to delay the law’s effective date, the court reasoned that the plaintiffs:
rais[ed] serious questions going to the merits and showing that the balance of hardship tips decidedly in their favor. Plaintiffs also have shown a likelihood of irreparable injury and that a restraining order is in the public interest. Specifically, plaintiffs have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court. Plaintiffs’ argument that allowing the statute to take effect even briefly, if it is preempted, will cause disruption in the making of employment contracts also is persuasive . . .
(internal citations omitted)
The court will hear the parties’ arguments on the merits of the motion for a preliminary injunction on January 10, 2020. Employers in the Golden State should consult with their labor counsel to analyze options and develop strategies for proceeding in the new year.