Judge Orders Preliminary Injunction on Law Prohibiting Mandatory Arbitration Agreements in California

by Gerald Sauer

Earlier this month, a District Court judge issued a preliminary injunction on the enforcement of Assembly Bill 51 (“AB 51”), the new law that prohibits mandatory arbitration agreements in the employment context.   The business groups that filed suit against the bill argued that it was preempted by the Federal Arbitration Act (“FAA”) because (1) it puts arbitration agreements on an unequal footing from other contracts, which is prohibited by the FAA, and (2) it conflicts with the objectives of the FAA to promote arbitration.  

In her order, the judge found that the business groups were likely to prevail on the merits and face irreparable harm if the preliminary injunction is not issued.  However, it is important to note that the injunction only applies to arbitration agreements covered by the FAA – in other words, if the employment relationship involves interstate commerce. 

Accordingly, mandatory arbitration agreements governed by the FAA are still enforceable in California, for now.  The law was set to go into effect on January 1, 2020, but is now on hold until the judge makes a final decision on the merits, or the preliminary injunction order is appealed to the Ninth Circuit and, possibly, to the U.S. Supreme Court.  Either way, this issue is not likely to be resolved by the end of this year.