A federal court in Sacramento explained last week its rationale for temporarily barring the State of California from enforcing a new law, AB 51, that would curtail employment arbitration agreements. The rationale set forth in that written order of February 7, 2020, strongly suggests (but does not guarantee) that the court is inclined to permanently enjoin the State from enforcing that new law.
By adding section 432.6 to the California Labor Code, AB 51 would have banned employers from requiring employees to agree to arbitrate claims alleging violations of the California’s Fair Employment and Housing Act and Labor Code. On December 30, 2019, U.S. District Judge Kimberly Mueller granted a temporary restraining order barring the State from enforcing that new law until a hearing could be held in early January 2020.
Then, in a ruling on January 31, 2020, the court converted its temporary restraining order into a preliminary injunction. The preliminary injunction enjoins the State from enforcing AB 51 as it relates to arbitration agreements that are governed by the Federal Arbitration Act (“FAA”). That preliminary injunction is not permanent, but will remain in place until the court decides whether to issue a permanent injunction.
Judge Mueller’s ruling last month did not “explain the reasoning” for issuing the preliminary injunction; however, she promised to do so “in a detailed, written order” that would be dispatched shortly thereafter. On February 7, 2020, Judge Mueller issued that detailed written order in Chamber of Commerce of the United States, et al. v. Becerra, et al., U.S. Dist. Ct. E.D. Cal. Case No. 2:19-cv-2456.
The State had challenged the legality of issuing such an injunction, arguing that the plaintiffs did not have legal standing to bring the action and that the federal court lacked jurisdiction to hear the case. Judge Mueller’s detailed written order rejects those arguments.
That detailed order also sets forth the court’s analysis on the following four factors: (1) the likelihood of the plaintiffs succeeding on the merits of their claim that AB 51 runs afoul of the FAA, (2) the probability that plaintiffs would suffer irreparable harm absent a preliminary injunction, (3) the balance of the equities, and (4) whether ordering such an injunction is in the public interest.
The court was persuaded that the plaintiffs were likely to succeed on the merits for a number of reasons. First, Judge Mueller agreed that AB 51 violates the FAA by treating arbitration agreements differently than other contracts. Second, the court found that, by imposing penalties against employers who require their employees to enter arbitration agreements, AB 51 interferes with the FAA’s goal of promoting arbitration.
Given such circumstances, Judge Mueller was convinced that employers would be harmed if she declined to issue a preliminary injunction. In that vein, she explained that employers who comply with AB 51 would sacrifice their federal right to require arbitration agreements under the FAA; meanwhile, employers who fail to comply with AB 51 may be subject to civil and criminal penalties.
The court ultimately concluded that the balance of the equities and the public interest supported issuing a preliminary injunction. Judge Mueller elaborated that ensuring the supremacy of federal laws is of “paramount” importance.
While the court’s ruling is a good sign that it will at some point permanently bar the State from enforcing AB 51, it remains to be seen if the State can avoid that outcome. And while this preliminary injunction is likely appealable, there is no indication yet as to whether the State will pursue such an appeal or merely continuing litigating in the trial court against the imposition of a permanent injunction. As these developments unfold, employers who wish to secure arbitration agreements from employees should consult with competent legal counsel.