AB 51 Challenge: Preliminary Injunction Issued

Seyfarth Synopsis: After granting a temporary restraining order days before AB 51 was to go into effect, the Eastern District of California granted a motion for a preliminary injunction on January 31, 2020. An order detailing the court’s reasoning will follow.

As we expected, AB 51—codified as Labor Code section 432.6 and forbidding employers to require employees to enter into arbitration agreements as a condition of employment—was promptly challenged on grounds of unconstitutionality and preemption by the Federal Arbitration Act.

The lawsuit, brought by the U.S. and California Chambers of Commerce, as well as several trade organizations, sought declaratory relief and a preliminary injunction to stop the State of California from enforcing the new law with respect to arbitration agreements governed by the FAA.

After granting a motion for a temporary restraining order, and temporarily barring the State’s enforcement of AB 51 until January 31, 2020, the trial court has now granted the plaintiffs’ motion for a preliminary injunction.

The court will issue a detailed order outlining its reasoning in the coming days. In the meantime, the State remains enjoined from enforcing the ban on mandatory arbitration agreements contained in AB 51. It is possible that some plaintiffs’ lawyers will attempt to minimize the impact of the decision by arguing that it does not apply to suits brought by private individuals.