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Federal Court Extends Order Barring California From Enforcing New Anti-Employment-Arbitration Law

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

A federal judge in Sacramento has continued an order that temporarily bars the State of California from enforcing a new state law that would curtail employment arbitration agreements.  The new law, AB 51, which added section 432.6 to the California Labor Code, would have banned employers from requiring employees to agree to arbitrate claims alleging violations of certain state workplace laws; specifically, the Fair Employment and Housing Act and the Labor Code.

At a hearing on January 31, 2020, U.S. District Judge Kimberly Mueller converted her prior temporary restraining order into a preliminary injunction barring the state from enforcing the new law.  In the minute order memorializing that ruling, Judge Mueller stated that she would “explain [her] reasoning in a detailed, written order” that will be dispatched “[i]n the coming days.”  The case is Chamber of Commerce of the USA et al. v. Becerra et al., U.S. Dist. Ct. E.D. Cal. Case No. 2:19-cv-02456-KJM-DB.

In federal court, there are basically three types of injunctions that compel parties to do or stop doing a particular act; namely, 1) temporary restraining orders, 2) preliminary injunctions, and 3) permanent injunctions.  Courts generally issue temporary restraining orders and preliminary injunctions to preserve the status quo while deciding whether to issue a permanent injunction.  A court can issue a temporary restraining order without notice to the other party, while a preliminary injunction requires both notice to the other party and usually a hearing where each side presents their arguments.

Although not a guarantee that a permanent injunction will ensue, the issuance of a preliminary injunction is frequently a good sign that the court is strongly leaning in that direction.  Indeed, to obtain a preliminary injunction, the party asking for it must persuade the court that there is a likelihood of ultimately prevailing on the merits.

One aspect of the new law that has employers especially concerned is that it could impose imprisonment and fines on employers who try to condition employment on workers signing arbitration agreements.  According to employers, resolving workplace disputes through arbitration is better for everyone concerned because it is faster and more economical than litigating in court or in an administrative agency.  Employers say it is wrong to impose criminal penalties on them for trying to bolster such common-sense procedures, and that doing so runs afoul of the Federal Arbitration Act.

On the other hand, proponents of the new law contend that it is needed to prevent employers from depriving mistreated workers of having their day in court (or in administrative agencies created to remedy workplace violations).  They insist that, without the new law, employers can continue to coerce workers to sign away their legal rights, and that employees who sign away such rights are then “trapped in the employer’s handpicked arbitration system.”

Judge Mueller’s preliminary injunction is likely appealable, but there is no indication yet as to whether the State of California will pursue such an appeal or wait until the conclusion of the litigation.