California Law Banning Arbitration Agreements Challenged in Court

December 13, 2019

A group of trade associations is challenging a California law that prohibits new mandatory arbitration agreements regarding disputes that arise under California employment laws beginning January 1, 2020, claiming it is preempted by the Federal Arbitration Act (FAA).

AB 51 prohibits and criminalizes new employment arbitration agreements that require job applicants or employees, as a condition of employment, to waive any right, forum, or procedure for employment law violation, including to a civil action in court.

Criminal penalties include imprisonment in a county jail, not exceeding six months, or a fine not exceeding $1,000, or both.

In 2019, then-governor Jerry Brown (D) vetoed a virtually identical bill because it “plainly violates federal law.”

Outlook:  Earlier this year, the U.S. District Court for the Southern District of New York struck down New York’s similar ban on arbitration agreements, which also included a FAA carve-out, on FAA preemption grounds.  AB 51 may meet the same fate since the U.S. Supreme Court has repeatedly made clear that the FAA preempts state laws that ban or burden arbitration.