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More On The FFCRA: Payroll Tax Credits And Period Of Non-Enforcement

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

As we told you on March 22, 2020, the Department of Treasury (DOT), Internal Revenue Service (IRS), and Department of Labor (DOL) announced plans to provide some relief for small and midsize employers in light of the recently passed Families First Coronavirus Response Act (FFCRA). In their announcement, it was also stated that employers may make immediate use of their tax deposits to pay employees taking emergency leave under the Emergency Family and Medical Leave Act (E-FMLA) or as Emergency Paid Sick Leave Act (E-PSLA). The DOL further announced that it would not bring any enforcement actions against employers for any violations within the first 30 days the law is in effect, provided the employer can show it is acting in good faith to comply with the new law.

Use Of Tax Deposits/Payroll Tax Credits:

Generally, when employers pay their employees, they are required to withhold various taxes, such as federal income, Social Security, and Medicare taxes. Employers are then required to deposit these taxes, along with the employer’s share of Social Security and Medicare taxes, with the IRS. The announcement stated that employers who pay qualifying emergency leave under the E-FMLA or E-PSLA, will be able to retain a portion of these payroll taxes, equal to the amount of emergency leave paid. If there are not sufficient payroll taxes to cover the cost of the emergency leave, the announcement stated that employers will be able file a request for an accelerated payment from the IRS.

The IRS provided the following examples:

  • If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
  • If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

We expect the details of this new procedure to be announced sometime this week.

Non-Enforcement Period:

The announcement further clarified that the DOL was issuing a temporary non-enforcement period, and providing employers with 30-days to come into compliance with the Act. During this time, the DOL stated that it intends to provide employers with “compliance assistance.” In doing so, the DOL made clear that the brief period of adjustment was only available to employers acting “reasonably and in good faith.” Employers should use this time to work with legal counsel to make sure they are in compliance with the new Act.

We are watching for the issuance of more formal guidance, and we will provide an update at that time. If you have any questions in the meantime, please do not hesitate to reach out to any of our Labor and Employment attorneys for guidance.

 

COVID-19: Resources for California Employers (Updated 4/3/20)

Posted in Labor Law, New Legislation and Regulations

The COVID-19 pandemic is forcing employers to make unprecedented decisions about their workplace. In an effort to help employers as they make the difficult decisions they are currently facing, we have gathered guidance released by many of the federal and state agencies specifically related to COVID-19. We hope this page is useful resource. That being said, this is a rapidly changing area of law, and new guidance is being implemented on what seems like a daily basis. As such, we recommend employers consult with counsel for the latest developments, including prior to taking any actions.

State of California and City/County Orders:

As we have previously told you here  and here, both the State of California and many cities and counties throughout the state have issued shelter-in-place orders. While the city and county orders may not loosen the State’s Order, they may be more restrictive. While not an exhaustive list, you can find many of those Orders and Directives below:

Department of Labor:

On March 18, 2020, Congress passed the Families First Coronavirus Response Act (“FFCRA”). The President quickly signed it into law on the same day. The Act provides paid sick time and expands the Family and Medical Leave Act to provide an extended period of unpaid or partially paid leave for qualifying reasons related to the COVID-19 public health emergency. Our previous blog post summarizing the FFCRA can be found here.

The DOL has issued a FAQ for the FFCRA. This Q&A page answers common questions to the Act (including which employers are subject to the FFCRA and calculating pay for purposes of complying with the FFCRA, such as computing hours for part-time employees and including overtime for full-time employees), and specifies that it applies to leave taken between April 1, 2020 and December 31, 2020. Please see herehere, here and here for blog posts discussing the guidance. The DOL has also released a webinar providing information regarding the FFCRA for both employers and employees, which can be accessed here. Accompanying Power Point slides can be accessed here.

On March 25, 2020, the DOL released the Notice to employees regarding the FFCRA. Employers will be required to post this notice wherever it posts its other required notices, as well as distribute it to its remote employees. The Notice can be found here and a FAQ related to the Notice here. A blog post discussing this Notice can be found here.

On April 1, 2020, the DOL announced the issuance of its Temporary Rules regarding implementation of the FFCRA and what employers who are subject to it must do to ensure compliance. The Rules can be found here. A blog post discussing the Temporary Rules can be found here.

Coronavirus Aid, Relief, and Economic Safety (CARES) Act:

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Safety (CARES) Act was signed into law. Among other things, the CARES Act significantly expands unemployment benefits, offers loan support to small businesses, and provides for refundable payroll tax credits. Our blog post discussing the CARES Act can be found here.

Centers for Disease Control and Prevention (CDC):

The CDC has issued the following guidance for businesses responding to the COVID-19 pandemic here. The CDC website contains a wealth of information pertaining to the disease, its symptoms, and other similar information which can be found here. Guidance on when a person with COVID-19 may discontinue home isolation and return to work can be found here.

California Labor Commissioner:

Employees may be eligible to use paid sick leave under state and local law. California’s Labor Commissioner has issued an FAQ on California’s paid sick leave law during the COVID-19 pandemic.

California WARN Act:

On March 17, 2020, Governor Gavin Newsom issued an Executive Order suspending the 60-day notice requirement of Cal-WARN for employers who meet certain requirements. Specifically, in order to be relieved of the Cal-WARN notice requirements, employers considering mass layoffs must give the required notices with as much notice as practical, and for all written notices after March 17, 2020 California employers must also include the following statement (in addition to the other required language): “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.” More information regarding the Executive Order N-31-20 can be found here.

Department of Fair Employment and Housing (DFEH):

The DFEH issued an FAQ related to COVID-19. In it, the DFEH encourages California employers to follow the CDC guidelines, and follows many of the EEOC’s guidelines for dealing with the COVID-19 pandemic. This includes permitting employers to ask employees with COVID-19 to leave work, permitting employers to ask employees if they are experiencing symptoms of COVID-19, and conducting temperature checks for the purpose of evaluating the risk a particular employee may present to the workplace. It further reminds employers that all health information must be kept confidential, and provides guidance for employers as to evaluating requests for leave under the California Family Rights Act (CFRA) and as a reasonable accommodation.

Department of Homeland Security (DHS):

The Department of Homeland Security (DHS) has announced that, in light of the shift to a remoted workplace, it provide some flexibility with respect to Employment Verification (Form I-9) regulations. In doing so the DHS is permitting employers to inspect Section 2 documents remotely, as well as to retain copies of those documents. The announcement can be found here.

Department of Treasury (DOT), Internal Revenue Service (IRS), and Department of Labor (DOL):

On March 20, 2020, the Department of Treasury, IRS, and Department of Labor announced plans to provide some relief for small and midsize employers in light of the recently passed Families First Coronavirus Response Act. Specifically, it was announced that employers will have access to refundable payroll tax credits designed to provide reimbursement for the cost of providing COVID-19 related leave to their employees. The full announcement can be found here.

On March 31, 2020, the IRS issued 66 FAQs providing guidance to employers in connection with the payment of, and tax credits for, emergency paid sick leave (E-PSL) and emergency FMLA leave (E-FMLA) under the Families First Coronavirus Response Act (“FFCRA”).  Our blog post discussing those FAQ’s can be found here.

Employment Development Department (EDD):

The California Employment Development Department has released FAQ’s designed to help employers and employees determine what benefits and programs might be available as a result to job loss related to COVID-19.

The Equal Employment Opportunity Commission (EEOC):

The EEOC issued updated its guidance to help aid employers determine what actions may be taken during the pandemic, without violating the Americans with Disabilities Act (ADA) or the Rehabilitation Act, considering the COVID-19 epidemic. This guidance makes clear that the ADA and Rehabilitation Act do not interfere with or prevent employers from following the guidance of the CDC or other public health authorities. That guidance can be found here.

Federal Motor Carrier Safety Administration (FMCSA):

On March 18, 2020, the U.S. Department of Transportation’s Federal Motor Carrier and Safety Administration issued an emergency declaration, which broadened federal exemptions from compliance with certain driver safety regulations for interstate commerce, including the federal Hours of Service regulations. Information regarding this emergency declaration can be found here.

U.S. Department of Health and Human Services (HHS):

On March 28, 2020, the Office for Civil Rights of the HHS released a bulletin reminding employers of their obligations despite the pandemic. This followed their earlier bulletin  confirming that HIPAA still applies despite the pandemic.

Occupational Safety and Health Administration (OSHA):

Employers have an obligation under the Occupational Safety and Health Administration (“OSHA”) to keep its workplace free from a hazard where: (1) the hazard is recognized; (2) the hazard was likely to cause death or serious physical harm; and (3) the hazard could feasibly be corrected. (See 29 U.S.C. § 654(a)(1).) This applies to COVID-19 in the workplace. Similarly, the California Occupational Health and Safety Administration (“Cal/OSHA”) protects employees from working conditions that could pose an imminent danger to employees. OSHA has instructed employees to follow the U.S. Centers for Disease Control and Prevention (“CDC”) interim guidance with respect to responding to the threat of COVID-19.  That guidance can be found here. Cal/OSHA has published its own set of guidelines, which can be found here.

U.S. State Department:

The Department of State has issued a “Level 4” travel advisory, advising all American citizens to refrain from international traveling due to the COVID-19 outbreak. That advisory can be found here.

Office of Federal Contract Compliance (“OFCCP”):

The OFCCP has granted a three-month, national interest exemption and waiver from AAP obligations for new federal contracts “entered into specifically to provide Coronavirus relief.” This “exemption and waiver extends to all affirmative action obligations of supply and service and construction contracts, and other obligations as specified in” FAR clauses 52.222-26 (EEO-Executive Order 11246); 52.222.35 (veterans); and, 52.222-36 (individuals with disabilities). More information about this waiver can be found here.

San Francisco, Office of Labor Standards Enforcement (OLSE):

On March 24, 2020, the San Francisco Office of Labor Standards Enforcement issued guidance regarding use of COVID-19-related paid sick leave as used by San Francisco employees. That guidance can be found here, and a blog post discussing the OLSE guidance can be found here.

The attorneys at Weintraub Tobin are available to assist you as you evaluate the difficult decisions that employers throughout the state are being faced with.  Please reach out to the Weintraub Tobin attorney you regularly work with, or to any of the attorneys in the Labor and Employment Group.

IRS to Provide Tax Relief to Some Employers in Light of Families First Coronavirus Response Act

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

On March 20, 2020, the Department of Treasury, IRS, and Department of Labor announced plans to provide some relief for small and midsize employers in light of the recently passed Families First Coronavirus Response Act. Specifically, it was announced that employers will have access to refundable payroll tax credits designed to provide reimbursement for the cost of providing COVID-19 related leave to their employees.

Among the refundable tax credits are:

(1) withheld federal income taxes;

(2) the employee share of Social Security and Medicare taxes; and

(3) the employer share of Social Security and Medicare taxes for all employees.

The full announcement can be found here: https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus.

We anticipate that more comprehensive guidance will be announced shortly. When it is, we will provide an update. Until that happens, if you have any questions, please do not hesitate to reach out to any of our Labor and Employment attorneys for guidance.

 

Governor’s Newsom’s Statewide Order is in Place So Now, How Do Businesses Identify Essential Critical Infrastructure Workers?

Posted in New Legislation and Regulations

As our earlier post on March 19, 2020 announced, Governor Newsom issued Executive Order N-33-20 ordering all residents to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors as defined by the federal Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (“CISA”).

In order to assist businesses in determining whether they fall within one of the recognized critical infrastructure sectors and identifying essential critical infrastructure workers, the CISA developed an initial list of “Essential Critical Infrastructure Workers” to help State and local offices as they work to protect their communities, while at the same time ensuring continuity of functions critical to public health and safety, as well as economic and national security.

The list is advisory in nature and is not a federal directive or standard in itself.  However, in reliance on the CISA list, on March 20, 2020, California’s Public Health Officer issued a similar – but somewhat more expansive – list of “Essential Critical Infrastructure Workers” that will be relevant when analyzing compliance with Governor Newsom’s Order.  The list includes various types of jobs under different categories of critical infrastructure sectors that conduct a range of operations and services that are deemed essential to continued critical infrastructure viability in California.

A PDF of the California Public Health Officer’s “Essential Critical Infrastructure Workers” list can be viewed or downloaded here.

The attorneys at Weintraub Tobin continue to wish you and your families good health during these difficult times.  If we can be of assistance to you in analyzing your workforce under Executive Order N-33-20 and California’s Essential Critical Infrastructure Workers list, feel free to reach out to one of us.

California Governor Newsom Issues State-Wide Stay at Home Order

Posted in New Legislation and Regulations

On March 19, 2020 Governor Newsom issued a state-wide stay at home Order that will remain in place until further notice. To view or download a copy of Executive Order 33-20, click here. The Order directs all residents in the State of California to stay home unless necessary to maintain the continuity of operations of federally recognized critical infrastructure sectors.  To determine what infrastructure sectors are critical, the Governor refers to the U.S. Homeland Security CISA website. Continue Reading

(H.R. 6201) FAMILIES FIRST CORONAVIRUS RESPONSE ACT: What Employers Should Know

Posted in FMLA and Other Leaves of Absence, Labor Law, New Legislation and Regulations

On March 18, 2020, Congress passed the Families First Coronavirus Response Act (“FFCRA”). The President quickly signed it into law on the same day. The Act provides paid sick time and expands the Family and Medical Leave Act to provide an extended period of unpaid or partially paid leave for qualifying reasons related to the coronavirus [COVID-19] public health emergency.  Below is a summary of the portions of the new law relating to employee benefits and employer obligations. Continue Reading

San Francisco Paid Sick Leave Expanded Due to COVID-19

Posted in FMLA and Other Leaves of Absence, Labor Law, Wage & Hour

Yesterday, San Francisco Mayor London N. Breed announced a “Workers and Families First Program” to offer additional paid sick leave benefits to employees who have been impacted by the COVID-19 pandemic.  It will apply to San Francisco private sector workers, and if fully utilized, it could provide coverage for up to 25,000 San Francisco workers.  Fortunately for already-struggling businesses, the Program is not compulsory.  In addition, the Program will set aside $10 million in public funding to help offset the burden on who have to provide an additional five days of sick leave pay to workers, beyond their existing policies under SFPLO and state law.

According to the Mayor’s press release, “The Workers and Families First Program will provide City financial assistance to businesses and nonprofits to provide additional paid sick leave time to employees, over and above their existing policies. All San Francisco businesses will be eligible, with up to 20% of funds reserved for small businesses with 50 or fewer employees. The City will contribute up to one week (40 hours) at $15.59 per hour (minimum wage) per employee, or $623 per employee. The employer will pay the difference between the minimum wage and an employee’s full hourly wage.” Continue Reading

Employers Beware! Settling Individual Employee Claims Will Not Bar His or Her PAGA Claims

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

On March 12, 2020, in the case Kim v. Reins International California, Inc., the California Supreme Court addressed the issue: “Do employees lose standing to pursue a claim under the Labor Code Private Attorneys General Act (“PAGA”) … if they settle and dismiss their individual claims for Labor Code violations?”  Unfortunately, for employers in California, the California Supreme Court held that an employee could continue to pursue PAGA claims against their employers, even if they have settled and dismissed their individual claims, for Labor Code violations against that employer.

Reins operates a number of restaurants in California, and employed the plaintiff, Justin Kim, as a “training manager.”  Reins had classified its training managers as an exempt position.  Kim sued Reins in a putative class action claiming that he and other training managers had been misclassified.  His complaint brought individual claims, class action claims, and also sought civil remedies under PAGA as a result of the alleged misclassification.

Reins moved to enforce an arbitration agreement it had with Kim, dismiss the class action claims and stay the PAGA claim until the arbitration was complete (Reins acknowledged that it could not force arbitration of the PAGA claim).  The Court granted Reins’ motion.  It dismissed the class action claims and ordered arbitration of the individual claims while staying the PAGA claim pending the outcome of the arbitration.  During the arbitration, Kim accepted a settlement offer from Reins and dismissed his individual claims as a result.  This resulted in the stay of the PAGA claim being lifted.  Reins moved for summary adjudication on the ground that Kim no longer had standing to pursue a PAGA claim given that he had settled and dismissed his individual claims.  The trial court agreed with Reins and granted its motion, finding that Kim, by settling his individual claims, was no longer an “aggrieved employee” under PAGA.

The issue of standing acts as kind of a “gate keeper” to the court system, ensuring that courts are only deciding actual controversies between the parties.  In order to determine whether Kim had standing to pursue the PAGA claim despite his dismissal of his individual claims, the California Supreme Court looked to the language of the PAGA statute, noting that its job was “to ascertain the intent of the legislature so as to effectuate the purpose of the [PAGA statute].”  In looking at the plain language of PAGA as it relates to standing, a plaintiff has to establish two requirements: (1) he or she is someone “who was employed by the alleged violator;” and (2) he or she is someone “against whom one or more of the alleged violations [of the Labor Code] was committed.”  The California Supreme Court held that in applying this plain language, both requirements could be readily ascertained.  Kim was both employed by Reins and that he had alleged “that he personally suffered at least one Labor Code violation on which the PAGA claim was based.”

Reins argued that although this may have meant that Kim had standing under PAGA at the time he brought his claim, he “lost” standing when he settled and dismissed his individual claim.  In particular, Reins argued that once Kim’s “injury” had been settled and thereby “redressed,” it was no longer a “continuing injury” that needed to be addressed under PAGA.  The California Supreme Court rejected this argument.

First, the California Supreme Court held that the language of standing under PAGA focuses on the alleged violations, not the alleged injury.  In essence, to adopt Reins’ argument, the California Supreme Court felt that it would be inserting “expiration” language into the statute, which it did not feel that it could do under the separation of powers theory.  It concluded that the Legislature could have included such language when it enacted PAGA but apparently decided not to.  Thus, in interpreting the PAGA standing requirement, the California Supreme Court held, “employees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives, even if they did not personally experience each and every violation.”

Furthermore, under PAGA, a prospective plaintiff must first notify his or her employer and the Labor and Workforce Development Agency of the alleged violations and supporting facts and theories.  The LWDA then has 65 days in which to investigate, issue a citation, or otherwise respond to the employee’s notice.  If the LWDA fails to do one of these things within that time period, the employee may then bring a PAGA claim.  The California Supreme Court concluded that the statutory purpose of PAGA was to allow private individuals, such as Kim, to seek to enforce PAGA as a means of augmenting “the limited enforcement capability of the [LWDA].”  Thus, the Court noted that focusing on the PAGA plaintiff individual’s claims shifts focus from the proper role of the plaintiff who is instead “acting on behalf of the government.”

Likewise, although a representative of a class action can lose his or her ability to represent the class if he or she settles and dismisses her individual claims, the Court concluded that PAGA is not analogous to a class action.  Rather, the California Supreme Court concluded, “Every PAGA action … is a representative action on behalf of the State” and not on a particular class.

The California Supreme Court also reasoned that allowing an employer to avoid PAGA penalties by settling a representative’s individual claims would frustrate the State’s ability to collect and distribute civil penalties that are supposed to be collected in connection with PAGA claims.  The California Supreme Court was concerned that the State’s ability to recover future PAGA monies “would be diminished” and that “employers could potentially avoid paying any penalties to the state simply by settling with the individual employees.”

California employers need to be aware of the significance of the California Supreme Court’s Kim decision, especially in strategizing how to address alleged Labor Code violations brought by a single employee.  Employers may now be forced to focus more on litigating the PAGA claims rather than trying to avoid those claims by seeking to settle and/or dismiss a representative employee’s individual claims.

California Appeals Order Barring Enforcement of New Anti-Arbitration Law

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

The State of California filed an appeal last week to challenge a federal court’s order barring California from enforcing a new state law that would curtail workplace arbitration agreements.  Unless the State takes some additional action, the lower court’s ban on enforcement of the new law, AB 51, will remain in effect during the appeal.

The new law would prohibit employers from requiring employees to agree to arbitrate claims alleging violations of the California’s Fair Employment and Housing Act and Labor Code.  Many employers are especially concerned that AB 51 could impose imprisonment and fines on those who try to condition employment on workers signing arbitration agreements.  However, 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).

In rulings on January 31 and February 7, 2020, U.S. District Judge Kimberly Mueller (of the Eastern District of California, in Sacramento) issued a preliminary injunction barring the State from enforcing AB 51.  That preliminary injunction is not permanent, but would remain in place until the district court decides whether to issue a permanent injunction.  On February 19, 2020, the State filed its notice asking the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) to reverse the preliminary injunction.

Now that its appeal is on file, the State may ask either Judge Mueller or the Ninth Circuit to suspend enforcement of the preliminary injunction until the outcome of the appeal.  If the State were to proffer such a request, and if the courts were to grant it, such a ruling would allow the State to enforce the ban on arbitration agreements while the appeal is pending.

Regardless of whether the State seeks or obtains such a stay, employers who wish to secure arbitration agreements from employees should consult with competent legal counsel.  The district court 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.  The Ninth Circuit case is Chamber of Commerce of the USA et al. v. Becerra et al., Case No. 20-15291.

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

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

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.