California and Federal Arbitration Acts

California Ban on Arbitration Agreements Further Enjoined

The California legislature passed a new law in 2019 (AB 51) barring employers from requiring employees to enter into arbitration agreements that cover wage and hour claims and FEHA claims (discrimination, harassment, retaliation).  Once in effect, the mandatory arbitration ban will apply only to contracts that are entered into, modified or extended on or after Jan. 1, 2020. Thus, arbitration agreements already in existence appear to enjoy the benefit of a grandfather provision.

That law was supposed to take effect January 1, 2020, and would have applied to arbitration agreements entered into after that date.  However, business groups led by the California Chamber of Commerce filed a lawsuit seeking to enjoin the state from enforcing the new law, arguing that it is preempted by the Federal Arbitration Act (FAA).  In late December, the Eastern District of California (Judge Mueller) temporarily enjoined enforcement of the new law pending further court proceedings.  After considering further briefing, the court has now granted a longer injunction against the law, which will be in place until the litigation is resolved on the merits.

California employers should continue to monitor this issue as its ultimate outcome will impact the continued validity of arbitration agreements used in the employment relationship. For now, though, mandatory arbitration agreements in California are still permissible.