AB 51 was signed by Governor Newsom back in October 2019. AB 51 generally prohibited employers from requiring employees, as a condition of employment, to agree to arbitrate any future Labor Code claims and/or Fair Employment and Housing Act (“FEHA”) claims. AB 51 also made it illegal for employers to use an “opt out” provision in their mandatory arbitration agreements. AB 51 was supposed to go into effect on January 1, 2020.
But AB 51 was always on shaky ground. A prior version of the bill had been vetoed by California’s previous governor. Plus, the language of the bill pretty clearly contradicted prior U.S. Supreme Court decisions. Most employment lawyers expected business-friendly groups — and also Uber and Lyft — to immediately challenge the bill in Court.
That challenge came on December 6, 2019 when various employer-friendly groups – including the California Chamber of Commerce and the U.S. Chamber of Commerce – sued to block AB 51 from becoming law. These groups argued that AB 51 violates the Supremacy Clause of the U.S. Constitution because it illegally impedes and creates obstacles to arbitration in violation of the Federal Arbitration Act (“FAA”). You can read a copy of this lawsuit here.
On December 30, 2019, U.S District Judge Kimberly Mueller granted a temporary restraining order preventing AB 51 from taking effect on January 1, 2020. In reaching her decision, Judge Mueller ruled that the employer groups’ had shown a likelihood of irreparable injury if an injunction blocking the law was not ordered. In addition, Judge Mueller ruled that the harm to the state of stopping the statute from going into while these issues are addressed is minimal.
As a result, the Court issued a preliminary order blocking AB 51 from becoming law on January 1, 2020. The Court set January 10, 2020 as the date it will hear the parties’ arguments on a permanent injunction to forever block the law from going into effect. You can read Judge Mueller’s opinion here.
We’ll continue to keep you posted here on AB 51’s future. For now, though, California employers can continue to use mandatory arbitration agreements provided that they are not procedurally and substantively “unconscionable.” If you have questions, we urge you to talk to experienced employment counsel because drafting an agreement that can survive a Court’s review of its “unconscionability” is extremely tricky.
