Earlier today, the U.S. District Court for the Eastern District of California heard oral arguments on whether the court should enter a preliminary injunction preventing the State of California (State) from enforcing AB 51 while the court resolves the underlying challenge to the new law on the merits. See Chamber of Commerce of the United States of America, et al. v. Becerra, E.D. Cal. Case No. 2:19-cv-02456-KJM-DB. AB 51 purports to bar California employers from requiring employees to sign arbitration agreements relating to claims under the Fair Employment and Housing Act and Labor Code.  (For Jackson Lewis articles chronicling the history of the embattled bill, please see California Bar on Mandatory Arbitration Agreements in Employment Temporarily Enjoined and New California Law Attacks Mandatory Arbitration Again … But Is It More Bark Than Bite?)

The U.S. Chamber of Commerce (Chamber) took the position that the injunction should be granted because AB 51 unlawfully seeks to apply different terms of contract law to arbitration agreements and therefore violates the Federal Arbitration Act (FAA). Citing Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2017) and Kindred Nursing Centers. Ltd. Partnership v. Clark, 137 S. Ct. 1421 (2017), the Chamber stressed that the State cannot hold arbitration agreements to higher standards than other contracts, including with respect to contract formation and consent.  Finally, responding to the State’s suggestion that there was no imminent threat that criminal penalties would be imposed under AB 51, the Chamber maintained that the State then had no reason to object to entry of a preliminary injunction.

Generally, the State argued that AB 51 only governs employers’ behavior with respect to agreements with employees generally and that AB 51 does not directly target arbitration agreements, as the law could also apply to nondisclosure agreements, forum selection clauses, and other types of agreements not governed by the FAA. Accordingly, in the State’s view, AB 51 does not unfavorably target arbitration agreements and evades preemption under the FAA.  The State also questioned the Chamber’s standing to bring a challenge to AB 51.

Ultimately, the court requested supplemental briefing with respect to the State’s suggestion that the court lacks jurisdiction. By no later than January 17, 2020, the State must submit supplemental briefing raising any jurisdictional challenges (including challenges to standing), as well as the State’s position in the event the court grants the preliminary injunction in part. The Chamber’s response to the State’s submission is due by no later than January 24, 2020. In the meantime, the temporary restraining order precluding the State from enforcing AB 51 will remain in effect until January 31, 2020. The temporary restraining order has been modified to limit its application and protection to arbitration agreements covered by the FAA.

Jackson Lewis will continue to monitor developments under the law.  Please contact a Jackson Lewis attorney with any questions.