Just two days before it was slated to take effect, California’s controversial new law on mandatory arbitration agreements is in legal limbo. AB 51, signed by the Governor in October, would make it an unlawful employment practice for an employer to require employees or applicants to “waive any right, forum, or procedure for a violation of” the California Fair Employment and Housing Act (FEHA) or the Labor Code. In other words, employers could no longer force employees to sign arbitration agreements. (Arbitration agreements entered into prior to the New Year are not affected by AB 51.)
But on Monday, December 30, 2019, District Judge Kimberly J. Mueller of the Eastern District of California issued a temporary restraining order barring California’s Attorney General, Labor Commissioner, and other relevant officials from enforcing AB 51. The court found that a collection of business groups led by the U.S. Chamber of Commerce “have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court.”
Unless an appellate court intervenes, the TRO will remain in place while Judge Mueller considers a request by the plaintiffs for a preliminary injunction. The court set a January 10, 2020, hearing date on the preliminary injunction motion.
Ultimately, we can expect the parties to continue this fight all the way to the United States Supreme Court. This will be the latest chapter in a years-long tug-of-war over the use of arbitration agreements by employers in California. Various California courts and legislators have sought to restrict employer efforts to remove employment claims from court to private arbitration. The US Supreme Court, meanwhile, has struck down various restrictions on arbitration agreements as being inconsistent with the favorable view of arbitration expressed by the Federal Arbitration Act.
So what do employers do in the meantime? Can you mandate arbitration agreements until further notice?
Even with California officials currently barred from enforcing AB 51, there is some potential risk to employers if AB 51 ultimately survives this court challenge. This is because AB 51 gives an employee a private right of action against an employer who forces the employee to sign an arbitration agreement or retaliates against the employee for refusing to do so. Employers who wish to implement or maintain mandatory arbitration policies should consult counsel and track developments in this litigation through the district court, the Ninth Circuit, and the US Supreme Court.
Alternatively, voluntary arbitration agreements will remain legal regardless of AB 51’s fate. Because plaintiff attorneys frequently challenge arbitration agreements on various fairness grounds, voluntary arbitration agreements have the added benefit of being easier for employers to enforce in court.