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California’s Workplace Arbitration Law Blocked by Judge (1)

Dec. 30, 2019, 6:56 PMUpdated: Dec. 30, 2019, 8:45 PM

California’s novel law to limit the use of workplace arbitration agreements won’t go into effect in January thanks to a federal judge’s Dec. 30 order.

The U.S. Chamber of Commerce and other business groups raised serious questions about whether the Federal Arbitration Act preempts the state’s employment arbitration law, U.S. District Judge Kimberly Mueller said in her order granting a temporary restraining order against the law.

California’s restriction on workplace arbitration would prohibit employers from requiring that job applicants or workers sign arbitration pacts as a condition of employment. That represents a departure from other states’ tactic of declaring that agreements to arbitrate certain types of claims are invalid.

Although just a temporary restraining order, the ruling deals a blow to a state statute on arbitration designed to pass legal muster where others failed. Mueller will hear the business groups’ motion for a preliminary injunction Jan. 10.

The law, known as Assembly Bill 51, would ban companies from forcing workers to waive their rights under the California Labor Code or the state’s anti-bias statute. It specifically says it’s not intended to invalidate arbitration agreements that are enforceable under the FAA.

By focusing on regulating employer conduct rather than arbitration, California’s law has a shot at avoiding FAA preemption, according to some legal scholars.

But the FAA preempts more than just state laws that say arbitration agreements are unenforceable, the Chamber and six other industry groups said in their lawsuit. The U.S. Supreme Court said in its 2017 ruling in Kindred Nursing v. Clark that the FAA also blocks laws controlling the formation of arbitration agreements, the groups said.

Situation Merits Order: Judge

Mueller cited Kindred Nursing when she ruled that the business groups raised enough questions about FAA preemption to merit the temporary restraining order.

Moreover, stopping the law from taking effect was warranted in light of the pervasive disruption it would have on forming employment contracts, Mueller said. The business groups had no other adequate legal remedy to preserve the status quo during the short period before the hearing on their request for a preliminary injunction, she said.

The business groups are “extremely pleased” with Mueller’s ruling and look forward to returning to court for the next hearing, Michael Lotito, an attorney with Littler Mendelson, said via email. Littler represents five of the seven groups that sued, including the National Retail Federation, National Association of Security Companies, and Home Care Association of America.

The California Labor Federation, one of the law’s chief backers, is “extremely disappointed” with the decision, said federation spokesman Steve Smith. Nevertheless, the temporary restraining order is “just the first step in the process and we’ll continue to work with the California attorney general to vigorously defend our law,” Smith said.

The Chamber and the California attorney general’s office didn’t immediately reply to requests for comment.

Assemblywoman Lorena Gonzalez, the California Democrat who authored A.B. 51, said via email that she looks forward to a “full hearing” on Jan. 10.

The case is U.S. Chamber of Commerce v. Becerra, E.D. Cal., No. 19-01142, Order 12/30/19.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Terence Hyland at thyland@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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