Dec. 11, 2019 U.S. and California Chambers of Commerce File Lawsuit Challenging AB 51

On October 10, 2019, Governor Gavin Newsom signed AB 51, which effectively prohibits employers from requiring employees to enter arbitration agreements as a condition of employment.  AB 51 goes into effect on January 1, 2020.
 
On December 9, 2019, the U.S. Chamber of Commerce, the California Chamber of Commerce, and a number of other business associations and organizations filed a lawsuit in the United States District Court for the Eastern District of California.  The lawsuit alleges AB 51’s limits on arbitration agreements conflict with the Federal Arbitration Act (FAA) and it is thus preempted and invalid under the Supremacy Clause of the United States Constitution.  Specifically, plaintiffs contend AB 51 impermissibly impedes arbitration by subjecting arbitration agreements to formation barriers that do not apply to other types of agreements.
 
The complaint requests a declaratory judgment that AB 51 is invalid with respect to all arbitration agreements governed by the FAA and seeks a permanent injunction preventing enforcement of AB 51.  On the same day they filed their complaint, the plaintiffs filed a motion for a preliminary injunction.  The motion contends plaintiffs are likely to succeed on the merits because AB 51 is preempted for the reason described above and that California employers will suffer irreparable harm if the court does not enjoin AB 51, including because they could be subject to civil and criminal liability for exercising their right to arbitrate under the FAA.  Plaintiffs’ motion for a preliminary injunction is currently set for hearing on January 10, 2020.

This E-Update was authored by Paul Batcher. For more information, please contact Mr. Batcher or any other Paul, Plevin attorney by calling 619.237.5200.