Not So Fast – Federal Court Issues TRO to Enjoin Enforcement of New California Arbitration Statute
We recently wrote about a new California law set to go into effect on January 1, 2020 that would outlaw mandatory arbitration agreements with employees.
The new law, known as AB 51, would also prohibit arbitration agreements that would require individuals to take affirmative action to be excluded from arbitration, such as opting out. The law would also appear to extend to jury waivers and class action waivers. And it would include criminal penalties.
An eleventh-hour court order will keep that statute from being enforced, at least for a few days.
On December 29, 2019, just days before AB 51 was to go into effect, a federal judge in the United States District Court of the Eastern District of California granted a temporary restraining order (“TRO”) to enjoin enforcement of AB 51.
In an action filed by a number of business groups, including the Chamber of Commerce, challenging the statute as being preempted by the Federal Arbitration Act (“FAA”), Judge Kimberly Mueller concluded that it would be disruptive if the statute went into effect for a brief period of time, only to have it later determined to be preempted.
The TRO will keep the status quo in place until Judge Mueller conducts a preliminary injunction hearing on January 10, 2020.
It is certainly possible that Judge Mueller will issue a preliminary injunction and, at a later date, a permanent injunction to prohibit enforcement of AB 51.
Of course, it is also possible that she will decline to convert the TRO into a preliminary injunction.
In the meantime, employers who were planning to implement new, AB 51-compliant arbitration agreements in California on January 1, 2020 – or to forego using arbitration agreements in California based on the statute — may want to hold off on doing so until Judge Mueller conducts that January 10, 2020 hearing.