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Court Blocks Ban on Mandatory Arbitration Agreements in Employment

Posted in Employment Contracts and Agreements, Labor Law, New Legislation and Regulations, Wage & Hour

Mandatory arbitration agreements in California employment have been granted a stay of execution. For now. Earlier today, a federal judge in California issued a temporary restraining order enjoining enforcement of AB 51, the new California law that would have banned employers in the state from requiring employees to sign mandatory arbitration agreements as a condition of employment.  AB 51 was set to take effect on January 1, 2020.

Earlier this month, a group of pro-commerce organizations and trade associations, including the United States Chamber of Commerce and the California Retailers Association, jointly filed a lawsuit seeking to block AB 51 from taking effect. The organizations argued that AB 51 was preempted by federal law that precludes states from limiting or interfering with the use of arbitration agreements to resolve disputes.

Judge Kimberly Mueller of the Eastern District of California accepted that argument, at least for now. The temporary restraining order prevents enforcement of AB 51 until at least January 10, 2020. The Court has set a hearing that day to decide whether to grant a preliminary injunction that would block enforcement of AB 51 until the lawsuit is resolved.

So what does this ruling mean for California employers? For now, not much other than hope. AB 51 will still take effect on January 10 unless Judge Mueller grants the longer injunction. Granting the temporary restraining order, however, does suggest that she believes the preemption argument may have merit. That said, employers would be best suited taking a wait-and-see approach between now and the next ruling from the court. In the meantime, employers may consider permissive, rather than mandatory, arbitration agreements that make clear entering into it is not a condition of employment. Also, because AB 51 does not apply retroactively, employers will still be able to enforce mandatory arbitration agreements that were entered into before January 1, 2020.