A federal court has issued a fixed injunction of California’s AB 51 arbitration ban, meaning employers who use such agreements can do so without the threat of sanctions by the state.
The Jan. 1 federal court order states that Atty. Gen. Rob Bonta, along with Labor Commissioner Lilia Garcia Brower, LWDA (Labor & Workforce Development Agency) Secretary Stewart Knox, DFEH (Dept. Fair Employment and Housing) Director Kevin Kish; and each of their successors, are prevented from enforcing AB 51 – which would have attempted to sidestep federal arbitration law and banned California employers from using arbitration clauses in employment contracts to prevent costly lawsuits.
The order dismissing the action with prejudice makes it the final judgment in the case.
Gregory Mersol
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Labor and employment attorney Gregory Mersol, a BakerHostetler partner, called it a very good ruling for employers.
“The court enjoined AB 51’s enforcement, so that employers can lawfully require arbitration conditions as a condition of employment,” Mersol said in an email response to the Northern California Record. “Gone are the potential risks of AB 51’s civil and criminal penalties for using such agreements.”
What the impact will be in the long fight over workplace arbitration in California remains to be seen, but it is unlikely to end soon, Mersol said.
“We expect to see continuous cycles of efforts by California lawmakers to obstruct employers’ ability to enforce arbitration agreements followed by those efforts being overturned by the federal court, including the Supreme Court,” Mersol said. “We have seen this happening for decades. Employers using arbitration agreements in the long- and short-term will have to stay abreast of new efforts by the California legislature, state, and some federal courts to use new or different approaches to limit the scope and applicability of employment arbitration.
“Employers using arbitration agreements can minimize their risk by periodically reviewing the terms of their arbitration agreements to ensure that they comport with or address the latest legal developments.”
A CalChamber alert on the court case stated: “In the successful lawsuit, the coalition argued that AB 51 conflicted with federal law (the Federal Arbitration Act), and if allowed to remain in effect, would have resulted in more litigation, significant delays in California’s justice system, and increased costs for businesses and workers alike.”
AB 51 was sponsored by former Assemblywoman Lorena Gonzalez, who now heads the California Labor Federation, and signed by Gov. Gavin Newsom in 2019, during his first year in office.
Later that fall, a U.S. Chamber-led coalition sued to overturn the law, but it was another four years before the court’s permanent injunction in Chamber of Commerce of the United States v. Bonta. The federal court has ordered the state to pay the Chamber’s court costs of $828,000 for its efforts in overturning the statute.
Mersol noted that there are no silver bullets in employment litigation.
“Arbitration can be quicker and less expensive, but there are trade-offs, including the potential cost of getting arbitration agreements enforced,” Mersol said. “Class, collective, and representative action waivers are among the most attractive provisions for employers, but California’s Labor Code Private Attorneys General Act (PAGA) continues to present unsettled issues for PAGA claims that still could leave employers with the risk of having to defend against PAGA representative action claims.”