California Court Concludes that Anti-Arbitration Law is Likely Preempted

On February 7, 2020, the U.S. District Court for the Eastern District of California issued an order supporting its injunction of Assembly Bill 51 (AB 51), an expansive anti-arbitration law enacted in October, which was scheduled to take effect on January 1, 2020.1  In its order, the court expressly noted that it was likely that opponents of the bill would succeed on their argument that AB 51 was invalid insofar as it is preempted by federal law.

Under AB 51, employers in the Golden State would be unable to require applicants and employees from waiving any right, forum, or procedure established by the California Fair Employment and Housing Act and the Labor Code, effectively banning mandatory arbitration of employment disputes.  Due to its particular placement in the Labor Code, violation of the law would constitute a misdemeanor.

In December, a coalition of national and state trade associations filed suit to enjoin the law from taking effect, arguing that AB 51 is preempted by the Federal Arbitration Act (FAA), the federal law that governs the use of arbitration in employment disputes.  The court previously granted the plaintiffs’ motion for a temporary restraining order on December 30, 2019, and enjoined enforcement of the law in late January. 

The court’s February 7 order sets forth in detail its reasoning.  The court specifically explained that it was likely that AB 51 would be found to be preempted by federal law, because AB 51 treats arbitration agreements less favorably than it does other contracts, and conflicts with the purposes and objectives of the FAA.  The court also held that an injunction of the law was in the public interest.

Pursuant to its order, California’s Attorney General, Secretary of the California Labor and Workforce Development Agency, and Director of the California Department of Fair Employment and Housing, are:

  • Enjoined from enforcing sections 432.6(a), (b), and (c) of the California Labor Code where the alleged "waiver of any right, forum, or procedure" is the entry into an arbitration agreement covered by the FAA, and
  • Enjoined from enforcing section 12953 of the California Government Code where the alleged violation of "Section 432.6 of the Labor Code" is entering into an arbitration agreement covered by the FAA.

As a practical matter, this means the state cannot enforce AB 51’s anti-arbitration provisions pending a final resolution of plaintiffs’ challenge, which the court has already indicated is likely to succeed.  At that point, it is likely that plaintiffs will seek to have the court make its temporary injunction permanent.  And, given the high profile of the case, it is likely whatever the outcome the case will end up being appealed.  Littler will continue to report developments as they occur.


See Footnotes

1 Littler Mendelson Shareholders Bruce Sarchet and Maury Baskin are representing five of the seven named plaintiff associations (National Retail Federation, the California Retailers Association, the National Association of Security Companies, the Home Care Association of America, and the California Association For Health Services At Home). The U.S. Chamber of Commerce and the California Chamber of Commerce are also plaintiffs.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.