Federal Judge Bars California’s Attempt to Criminalize Arbitration Agreements


California’s new law (AB 51) criminalizing arbitration agreements in enforcement will not take effect as scheduled. A federal court issued a temporary restraining order to halt any enforcement of this law.

There are serious questions regarding whether the Federal Arbitration Act (FAA) preempts AB 51. States are not permitted to override the FAA. Here, the federal court found that even to permit brief enforcement of this law would impermissibly cause disruption in making employment agreements, particularly given the criminal penalties that the law imposes.

This temporary restraining order will remain in place until the court rules on whether to grant a preliminary injunction, which is scheduled to occur on January 10, 2020. It seems likely that the court will extend its moratorium on enforcement, and will ultimately conclude that the FAA preempts AB 51.

Meanwhile, employers will be able to continue to require arbitration as a condition of employment.

The case is Chamber of Commerce of the USA et al. v. Becerra et al. Case No. 2:19-cv-02456-KJM-DB (E.D. Cal. Filed Dec. 9, 2019).