Federal Judge Issues Preliminary Injunction Blocking State’s Enforcement of New Law Banning Mandatory Employee Arbitration Agreements

Update Feb. 21, 2023

On Feb. 15, 2023, the Ninth Circuit issued an opinion affirming the District Court’s preliminary injunction on the grounds that AB 51 is preempted by the FAA.  For more on that decision, please see our legal alert on AB 51 here.

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On January 31, 2020, Judge Kimberly Mueller issued a preliminary injunction “in full” preventing the State of California from enforcing AB 51, the state’s new law effectively banning mandatory employee arbitration agreements.

As we previously reported, AB 51 adds section 432.6 to the Labor Code and section 12953 to the Government Code, which together prohibit employers from requiring an employee, as a condition of employment, continued employment, or receipt of employment-related benefits, to waive any right, forum, or procedure to pursue a claim under the California Fair Employment and Housing Act or the Labor Code. In other words, AB 51 bans mandatory employment arbitration agreements for employment-related claims.

In early December 2019, the U.S. Chamber of Commerce and a coalition of business organizations sued the state of California in federal court in a bid to have AB 51 declared preempted — and therefore unenforceable — by the Federal Arbitration Act. The case is Chamber of Commerce of the United States v. Becerra, Case No. 2:19-cv-2456 KJM DB (E.D. Cal.).

On December 30, 2019, Judge Mueller issued a temporary restraining order preventing the state from enforcing AB 51 pending the resolution of plaintiffs’ motion for a preliminary injunction. You can read our report here.

After hearing oral argument from the plaintiffs and the state on January 10, 2020, the court issued an order last Friday granting plaintiffs’ motion for a preliminary injunction, with a note that “[i]n the coming days the court will explain its reasoning in a detailed, written order.”

The order specifically enjoins the California Attorney General, the California Labor Commissioner, the Secretary of the California Labor and Workforce Development Agency (“LWDA”), and the Director of the California Department of Fair Employment and Housing (“DFEH”) from enforcing (1) Labor Code sections 432.6(a), (b), and (c) “where the alleged ‘waiver of any right, forum, or procedure’ is the entry into an arbitration agreement covered by the Federal Arbitration Act,” and (2) Government Code section 12953 “where the alleged violation of ‘Section 432.6 of the Labor Code’ is entering into an arbitration agreement covered by the FAA.” Since the court’s order only specifically enjoins the state, it remains to be seen how the preliminary injunction will affect litigation between private parties.

The preliminary injunction maintains the status quo while the case proceeds. Absent other action from the court, the preliminary injunction will remain in place until the court resolves the merits of the case and issues a final order declaring whether it finds AB 51 unenforceable in light of the FAA.

Employers should remain cautious. There is a long road ahead for this challenge to AB 51. If history is any indication, this case could very well be destined for the United States Supreme Court, where several other California arbitration cases have ended up. We will continue to monitor this case and report on important developments. Contact Payne & Fears LLP if you have questions about this case or AB 51.