In October 2019, Gov. Gavin Newsom signed several bills into new labor laws. These laws caused many California employers to worry about the increased risks they could face under new regulations, as well as how to implement new practices to comply with these laws.

However, employers may not have to worry about the effects of one of those laws just yet.

AB 51 was set to ban mandatory arbitration agreements

Lawmakers’ goal with Assembly Bill 51 was to prevent employers from requiring employees to waive certain rights as a condition of employment. Specifically, lawmakers wished to ban the use of mandatory arbitration agreements.

Essentially, the law required employers to:

  • Not stipulate arbitration as a condition for employment;
  • Allow employees to voluntarily agree or refuse to waive certain rights; and
  • Prevent retaliation against employees who chose not to waive their rights.

If employers violated the law, they could potentially face misdemeanor criminal charges and significant financial penalties.

The law received a significant amount of backlash from the Chamber of Commerce and employers alike, leading the Chamber of Commerce to file a lawsuit against the law. Now the law is on hold.

Judge puts the law on hold, not in effect for now

In January, Chief U.S. District Judge Kimberly Mueller placed a temporary restraining order on AB 51. She also issued an order that prevents the state from implementing certain sections of the law – including the ban on mandatory arbitration agreements.

Judge Mueller agreed with the Chamber of Commerce’s lawsuit, claiming that:

  1. AB 51 violated the Federal Arbitration Act (FAA); and
  2. The vague language in the bill would not get around FAA regulations.

The temporary restraining order has been extended, meaning that California employers do not have to worry about adjusting their policies and adhering to this law quite yet. However, employers must also think of the future. Lawmakers tried to pass a law banning mandatory arbitration agreements twice before in 2015 and 2018. These attempts failed, but this third attempt got farther than the others.

If the restraining order on the bill continues, lawmakers will likely try to pass such a law again, and employers must be vigilant to protect their business and reduce the risks they face.