Seyfarth Synopsis. As of January 1, 2020, AB 51 makes it unlawful for employers to impose arbitration agreements on employees as a condition of employment, even if employees are permitted to opt out. But will AB 51 withstand a legal challenge saying that AB 51 is preempted by the Federal Arbitration Act? While courts ponder that question, California employers must decide how to ring in the New Year.

‘Tis the Season to be Mindful of AB 51

As we previously reported, on October 10, 2019, Governor Newsom signed into law a host of employment bills, including AB 51, which adds Section 432.6 to the Labor Code and Section 12953 to the Government Code.

As a devoted California Peculiarities reader, you know that AB 51 prohibits employers from requiring—as a condition of employment or continued employment or receipt of an employment-related benefit—any job applicant or employee to “waive any right, forum, or procedure for a violation of any provision” of the Fair Employment and Housing Act or the California Labor Code, which is over 600 pages long. The law also prohibits employers from threatening or retaliating or discriminating against employees or applicants for refusing to waive their rights.

Arbitration agreements are clearly among AB 51’s targets. Oh, and the consequences for violating AB 51? Too numerous to recount here. But one of them is a misdemeanor, under Labor Code Section 433. Another is a lawsuit under the Labor Code or the Fair Employment and Housing Act.

The Awaited Challenge to AB 51: A Holiday Gift?

The possibility of federal preemption has cast a cloud over AB 51 since its inception. Remember how Governor Brown vetoed prior proposed legislation because bans of arbitration agreements have been consistently struck down as violating the FAA? We sure do.

As expected, AB 51 has been promptly challenged. On December 6, 2019, the U.S. and California Chambers of Commerce, along with several trade organizations, filed a complaint in the Eastern District of California. The complaint argues that AB 51 is unconstitutional because it is preempted by the FAA. The lawsuit requests declaratory and injunctive relief, and seeks to stop AB 51’s enforcement with respect to arbitration agreements governed by the FAA.

On December 9, 2019, the U.S. Chamber and the other plaintiffs filed a memorandum in support of its request for a preliminary injunction to stop AB 51’s enforcement until its legality is determined. A hearing on a temporary restraining order has been set for December 19, 2019, so there may be more guidance sooner than initially anticipated.  The hearing on the preliminary injunction currently is set for January 10, 2020.

Workplace Solutions to Help Employers Ring in the New Year

As this challenge winds its way through the courts, employers will need to carefully evaluate their arbitration programs. There is no one-size-fits-all solution that will work for every employer. Each employer’s response to AB 51 will reflect that employer’s own appetite for legal risk and its felt need to have an effective arbitration program. The most confident employers will stay the course based on the assumption that AB 51 will be held unconstitutional. The most cautious employers will suspend their arbitration programs and not proceed further down the road of arbitration until they’re sure that the coast once again is clear. If you have questions about how AB 51 may affect your arbitration program and how to avoid ending up on a naughty list, don’t hesitate to contact your favorite Seyfarth attorney.


Edited by Elizabeth Levy