California Anti-Arbitration Law Likely Preempted, Federal Court Rules

February 14, 2020

A federal judge has indefinitely blocked a new California law (A.B. 51) that would make it a misdemeanor for businesses to condition jobs on workers agreeing to bring employment claims through arbitration, saying the state law is likely preempted by the Federal Arbitration Act (FAA).

A.B. 51 was written to avoid FAA preemption by penalizing businesses that make workers sign arbitration agreements without invalidating the underlying agreement.

The judge rejected the state’s argument that the law doesn’t regulate agreements.

The ruling stated A.B. 51 interferes with the FAA’s purpose of promoting arbitration as interpreted by the U.S. Supreme Court.  The judge said that because A.B. 51 would likely have a deterrent effect on employers’ use of arbitration agreements given the sanctions associated with the law, it is preempted by the FAA.

Outlook:  The court ruling is likely to increase demands in Congress to amend the FAA to ban work employment arbitration agreements.