California Bans Employment Arbitration Agreements

California Bans Employment Arbitration Agreements

California recently passed AB 51 prohibiting California employers from requiring job applicants or employees to enter into arbitration agreements on or after January 1, 2020 that purport to cover any dispute arising under the California Fair Employment and Housing Act (FEHA) or the California Labor Code, or to threaten, retaliate or discriminate against, or terminate any job applicant or employee because of his or her refusal to consent to such an arbitration agreement. This law likely violates the Federal Arbitration Act (FAA) and U.S. Supreme Court cases relating to the FAA’s preemption of state laws that purport to bar arbitration agreements.

Earlier in 2019, a federal district court in New York struck down a similar New York state law, which prohibited contracts that mandated the arbitration of sexual harassment claims in the workplace (Latif v. Morgan Stanley & Co. LLC, et al., No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019)). On December 6, 2019, the U.S. Chamber of Commerce and other business organizations filed suit in California federal district court (Chamber of Commerce of the United States v. Becerra, No. 2:19-cv-2456 KJM DB (E.D. Cal. Dec. 6, 2019)) seeking a declaration that AB 51 is preempted by the FAA and an injunction to stay the State from enforcing AB 51. On December 30, 2019, a federal district court in California issued an order granting a temporary restraining order and setting an expedited hearing on the plaintiffs’ preliminary injunction for January 10, 2020, which temporarily enjoined enforcement of AB 51. On January 31, 2020, the court granted the plaintiffs’ motion for a preliminary injunction. This means the State continues to be enjoined from enforcing the ban on mandatory arbitration agreements that is set forth in AB 51, pending further litigation.