anti-arbitration law blocked

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Businesses will get their day in court to determine the legality of AB51, a controversial bill intended to take effect on Jan. 1, 2020.

The bill would impose criminal penalties on companies forcing employees or applicants to sign arbitration agreements as a condition of employment. Arbitration uses a neutral third party to resolve disputes, rather than a court proceeding.

On Friday, Jan. 31, Chief United States District Judge Kimberly J. Mueller issued a preliminary injunction halting enforcement of the law indefinitely – until the case reaches court. Mueller had previously issued a temporary restraining order to prevent the law from taking effect until she ruled on the preliminary injunction.

A coalition of business groups, including the U.S. Chamber of Commerce, the National Retail Federation and the California Retailers Association, filed a federal lawsuit in December challenging the law. They say the Federal Arbitration Act (FAA) preempts California’s law. According to the U.S. Supreme Court, the FAA represents “a national policy favoring arbitration.”

Numerous prior court rulings agree with that assessment. Only last August, a federal court ruled that the FAA preempted a New York law prohibiting mandatory arbitration of sexual harassment claims. Similarly, in a ruling last July, a superior court judge struck down a Washington law banning arbitration. And Gov. Jerry Brown last year vetoed two legislative efforts along the lines of AB51, declaring, “This bill plainly violates federal law.”

Assemblywoman Lorena Gonzalez (D-San Diego) introduced the bill as a “sexual harassment” bill linked to the #MeToo Movement. In fact, the bill is much broader in scope. AB 51 covers other discrimination claims, as well as employee grievances over issues of wages and hours.

How should businesses react? You can assume the law will be deemed unconstitutional and keep doing what you are doing. But if you’re an employer who wants to play it safe, you may want to suspend your arbitration program until the case proceeds through the courts.