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Court Issues Preliminary Injunction, Blocking Enforcement of New Employment Arbitration Ban

For CEOs, in-house counsel, human resources executives

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Last week, a U.S. District Court judge issued a preliminary injunction in the case challenging the validity of Assembly Bill (AB) 51 (2019), which prohibits employers from requiring employees to sign a pre-dispute arbitration agreement as a condition of employment or continued employment. The new law applies to any agreement entered into, modified, or extended on or after Jan. 1.  

As previously reported, the law was set to take effect Jan. 1 but was temporarily blocked last month by a lawsuit challenging its validity. Last week’s preliminary injunction extends the ban on enforcement through the date of trial. While the preliminary injunction is expressly limited to state enforcement, the recent rulings may deter private trial attorneys from filing civil litigation based on AB 51. 

As a result of the preliminary injunction, the state is enjoined from enforcing California Labor Code §§ 432.6(a), (b), and (c), where the alleged waiver of any right, forum, or procedure is the entry into an arbitration agreement covered by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16. The state is also enjoined from enforcing California Government Code § 12953, where the alleged violation of California Labor Code § 432.6 is entering into an arbitration agreement covered by the FAA.

According to the court’s ruling, “Plaintiffs meet their burden of showing they are likely to succeed on the merits of their claim that AB 51 is preempted by the FAA because it discriminates against arbitration and interferes with the FAA’s objectives.”

CHA will keep members of apprised of further developments with this new law.