California employers may breathe a temporary sigh of relief after the U.S. District Court for the Eastern District of California issued an order enjoining Assembly Bill No. 51 (“AB 51”) from taking effect.
AB 51, which was scheduled to become law on January 1, 2020, prohibits employers from requiring job applicants or employees to waive “any right, forum, or procedure” for a violation of any provision of the Fair Employment and Housing Act (or other specific statutes governing employment) as a condition of employment, continued employment, or for the receipt of any employment-related benefit. The bill also prohibits employers from threatening, retaliating or discriminating against, or terminating any applicant or employee because of their refusal to consent to arbitration. AB 51 would penalize employers by making any violation of AB 51 a misdemeanor.
Given the potential impact AB 51 would have on California employers, the U.S. Chamber of Commerce, National Retail Federation, and others filed suit in the U.S. District Court for the Eastern District of California in December. In their complaint, they argued that that AB 51 undermines the Federal Arbitration Act (“FAA”), and creates an impermissible conflict between state and federal law. After initially granting an order temporarily preventing the law from going into effect, the District Court granted a preliminary injunction on February 10, 2020, enjoining the state from enforcing AB 51. In its ruling, the Court emphasized that AB 51 is likely preempted by the FAA, as it treats employment arbitration agreements differently and less favorably than other contracts. The Court found that this causes AB 51 to run afoul of the FAA, and the liberal federal policy favoring arbitration agreements. The Court further determined that AB 51 places employment arbitration agreements on an “unequal footing,” rendering AB 51 preempted by the FAA.
Accordingly, the Court issued a preliminary injunction, enjoining enforcement of AB 51, pending final resolution of the plaintiffs’ challenge to AB 51. This means that the State of California cannot enforce AB 51’s anti-arbitration provisions for the time being. Notably, the Court’s February 10 ruling determined that the plaintiffs’ challenge to AB 51 would likely succeed on the merits, signaling that a permanent injunction may be on the horizon.
While this is welcome news for California employers, the outcome of this matter will likely be subject to an appeal. Employers are recommended to keep a close eye on this evolving issue and should also be ready to consult with their employment attorney for the latest recommendations.
You may read our related AB 51 publications here and here.