Sunday, November 27, 2022

Court Order Underscores Reasoning Behind Lawsuit

AB 51 Anti-Arbitration Provisions Violate U.S. Law

The U.S. District Court order formalizing the ruling halting enforcement of the anti-arbitration law challenged by a California Chamber of Commerce-led coalition highlights the merits of the lawsuit.

The CalChamber identified the law, AB 51 (Gonzalez; D-San Diego), as a job killer that would have banned employers from, as a condition of employment, entering into arbitration agreements for claims brought under the Fair Employment and Housing Act and the Labor Code.

The lawsuit points out that AB 51 conflicts with the Federal Arbitration Act (FAA).

“We are pleased that after considering all briefing, Judge Mueller granted our request for a preliminary injunction in full,” said CalChamber President and CEO Allan Zaremberg. “The ruling recognizes that placing businesses at risk for criminal penalties for a practice that has long been supported both by California and federal law was excessive. While it may not serve the best interests of the trial lawyers, expeditious resolution through the arbitration process serves the interests of employees and employers.”

Court Order

In her February 7 order, U.S. District Court Judge Kimberly Mueller explained why she halted enforcement of and invalidated AB 51, detailing how it conflicts with the FAA.

Judge Mueller noted that the U.S. Supreme Court has declared “as a bedrock principle” that the FAA was designed to promote arbitration, reflecting, as outlined in another court case, a “national policy favoring arbitration.”

The “clear target” of AB 51, she wrote, “is arbitration agreements, given the sponsors’ concern regarding an overabundance of arbitration agreements in the California employment market.”

Of particular concern to employers were provisions of the law that placed on employers the extraordinary burden of criminal penalties punishable by imprisonment and fines.

Judge Mueller acknowledged this concern in her order, writing “…because the employer may be sanctioned specifically for requiring an arbitration agreement as a condition of employment…AB 51’s design does not comport with the equal footing principle and its effort to avoid FAA preemption fails.”

The order continued, “…AB 51 is preempted by the FAA because it singles out arbitration by placing uncommon barriers on employers who require contractual waivers of dispute resolution options that bear the defining features of arbitration.”

She went on to point out that a provision in AB 51 stating it is not intended to invalidate a written arbitration agreement otherwise enforceable under the FAA “does not exonerate employers who require the agreement in the first place. Given the penalties imposed on employers found to violate AB 51, the court finds that the law also interferes with the FAA and for this reason as well is preempted.”

Timeline

The CalChamber and the employer coalition filed their initial motion to invalidate and stop enforcement of AB 51 on December 6, 2019.

On December 30, 2019, Judge Mueller issued a temporary restraining order, halting enforcement of AB 51 until the matter could be resolved.

On January 31, 2020, Judge Mueller issued the minute order halting enforcement of AB 51, spelling out the reasoning in the preliminary injunction order issued on February 7.

More Information

To learn more on what the AB 51 preliminary injunction means for employers, listen to Episode 48 of The Workplace podcast at www.calchamber.com/theworkplace. Podcast special guest Donald M. Falk, partner at Mayer Brown, offers insights on the successful legal challenge to AB 51 that he helped lead.

To view legal documents related to the case, Chamber of Commerce of the United States of America, et al. v. Xavier Becerra, et al., go to www.calchamber.com/legalaffairs and click on “CalChamber in Court” in the dropdown menu.

CalChamber
CalChamber
The California Chamber of Commerce is the largest, broad-based business advocate to government in California, working at the state and federal levels to influence government actions affecting all California business. As a not-for-profit, we leverage our front-line knowledge of laws and regulations to provide affordable and easy-to-use compliance products and services.

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