Order Enjoining CA Arbitration Ban Modified but Remains in Effect

The temporary restraining order pausing enforcement of AB 51, the controversial law prohibiting mandatory arbitration agreements in California, remains in effect, though it has been narrowed in scope. As described in our prior advisory, AB 51 was set to take effect on January 1, 2020, but on December 30, 2019, Judge Kimberly Mueller of the United States District Court for the Eastern District of California issued a Temporary Restraining Order pausing enforcement.

Further proceedings were held on January 10, 2020, and after hearing arguments from the business groups challenging the law and the California Attorney General, Judge Mueller ordered supplemental briefing from the parties on several issues, including the parties’ positions about severability of portions of the law if the Court grants the business groups’ motion for a preliminary injunction "at least in part."

If Judge Mueller finds that portions of the law are severable, she could enforce some provisions of the law, while finding others are not enforceable. Judge Mueller also ruled that, pending the Court’s ruling on the motion for a Preliminary Injunction, that the Temporary Restraining Order remains in effect until January 31, 2020; however, the Court modified the order to clarify that the State of California is enjoined from enforcing the law "to the extent it applies to arbitration agreements covered by the Federal Arbitration Act." 

Employers relying on this delay AB 51’s enforcement to continue utilizing arbitration agreements will want to carefully review their existing agreements to ensure they are covered by the Federal Arbitration Act (FAA), and monitor further developments in this case.