Whipsaw Continues For CA Mandatory Arbitration Law

The circuitous path of a controversial California law – one that’s regarded as a boon by labor rights advocates and is favored by most Democrats, and an open door to wasteful litigation and impediment to efficient operations by much of the business community – took another turn this month, this one to the benefit of the companies. A post from law firm Jackson Lewis provides a thumbnail of this legal odyssey and what could be next.

The law, California’s Assembly Bill (AB) 51, would impose criminal and civil penalties on employers who require employees to sign an arbitration agreement as a condition of employment. On February 15, a preliminary injunction barring enforcement of the law with respect to arbitration agreements governed by the Federal Arbitration Act (FAA) was reinstated by the Court of Appeals for the Ninth Circuit. That’s just the most recent turn in a legal odyssey that began with a district court granting a request for a preliminary injunction from the U.S. Chamber of Commerce.

“The Ninth Circuit’s decision is a significant win for proponents of arbitration and could help proponents of arbitration outside California,” the Jackson Lewis attorneys write. “States such as Illinois, Maryland, New Jersey, New York, Vermont, and Washington have enacted state laws that purport to restrict an employer’s ability to enter predispute arbitration agreements with its employees. The Ninth Circuit’s decision provides further support that such state laws may be preempted by and invalid under the FAA.”