AB 51 Enjoined at the Last Minute: Court Issues TRO on California’s Arbitration Statute

As discussed in our prior article, California recently enacted Assembly Bill (AB) 51, a law that attempts to ban certain mandatory employment arbitration agreements in the state. Specifically, this new law purports to bar employers from requiring employees to arbitrate claims arising under the California Fair Employment and Housing Act (FEHA) and California Labor Code.

AB 51 was scheduled to take effect on January 1, 2020. With its threat of criminal penalties and damages claims, the new law was creating significant uncertainty and anxiety for employers that use employment arbitration.

Now, as predicted, the California statute has been challenged as preempted by the Federal Arbitration Act. Riding in like the proverbial cavalry to the rescue, a coalition of business organizations—led by the U.S. Chamber of Commerce—filed suit on December 9, 2019, seeking to enjoin AB 51. Chamber of Commerce of the United States et al. v. Becerra et al., No. 2:19-cv-02456 (E.D. Cal.)

Rushing in advance of AB 51’s January 1 effective date, the court conducted a telephonic hearing on December 23. One week later, on December 30, 2019—just two days before the law was scheduled to go into effect—the court issued a temporary restraining order blocking AB 51’s enforcement.

The court found that the business organizations “raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court.”

The court also found “a likelihood of irreparable injury and that a restraining order is in the public interest.” The court concluded that “allowing the statute to take effect even briefly, if it is preempted, will cause disruption in the making of employment contracts . . . particularly given the criminal penalties to which violators of the law may be exposed.”

Finding “that plaintiffs have no other adequate legal remedy to preserve the status quo for a short period of time until the court can consider their motion for a preliminary injunction,” the court granted the plaintiffs’ motion for a temporary restraining order.

Thanks to the court’s order, California is thus temporarily enjoined from enforcing AB 51. For now, at least, employers can breathe a sigh of relief.

The court will hear the plaintiffs’ motion for a preliminary injunction on January 10, 2020. There is every reason to expect the court will turn the TRO into a preliminary injunction. We will keep you posted.