AB 51 Update: Judge’s Opinion Granting Preliminary Injunction Indicates AB 51 will Ultimately be Permanently Enjoined

February 27, 2020
As previously reported, on February 3, 2020, Judge Mueller of the Eastern District of California issued a preliminary injunction enjoining Assembly Bill 51 (“AB 51”), California’s recent legislation prohibiting employers from requiring mandatory arbitration agreements as a condition of employment, continued employment, or receipt of employment-related benefits for claims arising under California’s Labor Code or California’s Fair Employment Housing Act. 
On February 7, 2020, Judge Mueller issued an opinion detailing the reasoning for that decision.
 
In the February 7 opinion, Judge Mueller sided with the plaintiffs, a coalition of business groups, in almost every respect.  The District Court agreed plaintiffs were likely to succeed on the merits that the FAA preempted AB 51 because it (1) treats arbitration agreements differently from other contracts and, (2) conflicts with the purposes and objectives of the FAA, which as the Supreme Court declared, “was designed to promote arbitration.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345 (2011). The District Court rejected the State-Defendants’ attempts to distinguish AB 51 from prior failed legislation that intended to restrict the use of mandatory arbitration agreements as a condition of employment, and highlighted that “AB 51’s legislative history acknowledges” that “the primary target of the bill is agreements to arbitrate.”  
 
The District Court also agreed that if AB 51 takes effect, plaintiffs are likely to suffer irreparable harm. The Court reasoned that California businesses relying on arbitration agreements as a condition of employment will be forced to choose between risking both criminal and civil penalties and “foregoing the use of arbitration agreements altogether to avoid penalties.” The District Court concluded that “in the unlikely event” AB 51 is not preempted by the FAA, defendants will have “suffered the minimal harm of delayed enforcement.”
 
The District Court made additional concluding observations where it emphasized that in passing AB 51, the California legislature “did not rely on any data or analyses suggesting that the standard contract defenses are not available as a practical matter to employees who believe they have been coerced or misled into entering into arbitration agreements.” 
 
The State has filed a notice of appeal of the District Court’s order to the Ninth Circuit Court of Appeals.  The State may also move to stay the preliminary injunction pending the outcome of the appeal, however it is unlikely the Ninth Circuit will stay the injunction, which would mean that the District Court’s order preliminarily enjoining the State from enforcing AB 51 would stay in effect pending a ruling from the Ninth Circuit.

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