The California Legislature’s attempt to circumvent both the Federal Arbitration Act (“FAA”) and the Supreme Court’s landmark decision in Epic Systems by crafting a new law prohibiting California employers from requiring employees to enter into arbitration agreements is off to a rocky start in the courts, to say the least.
As discussed below, a federal court has issued a preliminary injunction enjoining enforcement of California’s controversial new anti-arbitration statute known as AB 51. Barring some new development, it now appears clear that the statute cannot be enforced for the foreseeable future, and that its ultimate fate will be in the hands of the Ninth Circuit Court of Appeals and, perhaps, the United States Supreme Court.
As we recently wrote, in an action filed by a number of business groups challenging the statute as being preempted by the FAA, United States District Court Judge Kimberly J. Mueller issued a temporary restraining order (“TRO”) on December 29, 2019, to enjoin enforcement of AB 51, just days before it was to take effect.
The new law, which was set to go into effect on January 1, 2020, would outlaw mandatory arbitration agreements with employees. AB 51 would also prohibit arbitration agreements that would require individuals to take affirmative action to be excluded from arbitration, such as opting out. The law would also appear to extend to jury waivers and class action waivers. And it would include criminal penalties.
In issuing the TRO, Judge Mueller concluded that it would be disruptive if the statute went into effect for a brief period of time, only to have it later determined to be preempted.
During the subsequent January 10, 2020, hearing, Judge Mueller extended the TRO while she considered supplemental briefing to be submitted later this month on jurisdiction and standing issues.
After further briefing, Judge Mueller has now issued a preliminary injunction to enjoin enforcement of the new law. Her minute order indicates that a fuller order explaining her reasoning will be forthcoming.
The next step for the fate of AB 51 certainly appears to be the Ninth Circuit Court of Appeals. And as Judge Mueller herself originally stated, it may end up in the United States Supreme Court.
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