AB 51 Challenge: TRO Granted

Seyfarth Synopsis: Set to take effect on January 1, 2020, AB 51 would make it unlawful for employers to impose arbitration agreements on employees as a condition of employment, even if employees are permitted to opt out. As expected, AB 51 was promptly challenged. The trial court has just halted the law’s enforcement by the State of California, pending resolution of a motion for preliminary injunction.

As expected, AB 51 was 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 law’s enforcement with respect to arbitration agreements governed by the FAA. On December 30, 2019, the trial court granted the motion for a temporary restraining order—filed on December 16, 2019—thereby temporarily barring the State’s enforcement of AB 51.

The TRO is limited in scope to temporarily enjoin the State from enforcing AB 51, and does not necessarily address private enforcement.

The court found that the TRO was warranted because (1) “serious questions” exist regarding whether the law is preempted by the FAA, and (2) even temporary enforcement of AB 51 would “cause disruption” in the formation of employment contracts, especially considering the harsh consequences for violating the law.

The preliminary injunction hearing is set for January 10, 2020 at 10:00 a.m.