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Judge Puts Brakes on California Ban on Mandatory Arbitration

Granting a last-second motion brought by a host of business groups, a federal judge on Monday halted a pro-worker California law set to take effect Wednesday that would bar new mandatory arbitration agreements.

SACRAMENTO, Calif. (CN) – Granting a last-second motion brought by a host of business groups, a federal judge on Monday halted a pro-worker California law set to take effect Wednesday that would bar new mandatory arbitration agreements.

U.S. District Judge Kimberly Mueller said due to a “tightly compressed timeline” she was temporarily enjoining Assembly Bill 51 and fast-tracking oral arguments between the U.S. Chamber of Commerce and the state up to next week. Mueller said the business groups have raised “serious questions” whether the recently enacted law is pre-empted by federal law.

“The court finds that plaintiffs have no other adequate legal remedy to preserve the status quo for a short period of time until the court can consider the motion for a preliminary injunction on a more well-developed record,” Mueller said in her order.

In question is the law signed in October by Gov. Gavin Newsom which prohibits businesses from requiring applicants to waive their right to sue as a condition of employment. It also allows workers to pursue damages and attorneys’ fees and in extreme cases opens employers up to potential criminal liability.

Sponsored by the California Labor Federation and Consumer Attorneys of California, the measure cleared the Democratic-controlled Legislature in a series of mostly party-line votes.

Supporters of AB 51 say it was crafted to comply with federal law and is meant to protect workers in industries like food service, hospitality and retail that are increasingly being forced to sign away their rights to sue in exchange for being hired. It does not prevent employers and workers from entering voluntary arbitration contracts.

But opponents led by the chamber and National Retail Federation cast AB 51 as anti-business and a gift to California employment lawyers. They claim the law will increase operating costs by forcing employers and workers to hash out disputes in court, and that it’s pre-empted by the Federal Arbitration Act.

This month, the coalition sued to stop AB 51 and on Dec. 16 asked the court for emergency relief. It argued businesses could suffer irreparable harm if the state is allowed to enforce the law prior to the court hearing and ruling on the motion for preliminary injunction.

Joining the chamber and retail federation as plaintiffs are California Retailers Association, National Association of Security Companies, Home Care Association of America and California Association for Health Services at Home. The coalition is represented by firms Mayer Brown of Washington and Littler Mendelson of Sacramento.

In their opposition to the temporary restraining order, the state’s lawyers called the plaintiffs’ motion “sensationalized” and untimely.

“Plaintiffs are not entitled to the extraordinary remedy of a temporary restraining order because they sat on their hands, and did not file their complaint and motion for preliminary injunction until Dec. 9 – two months after the governor signed AB 51 into law,” said Chad Stegeman, deputy attorney general.

While Judge Mueller agreed that the motions were filed with “very little time to spare,” she sided with the business groups and set a hearing for Jan. 10 in Sacramento.

California Attorney General Xavier Becerra’s office didn’t immediately respond to a comment on the case filed in the Eastern District of California. Becerra is a named defendant along with State Labor Commissioner Lilia Garcia Brower, California Labor and Workforce Development Agency chief Julie Su, and California Department of Fair Employment and Housing director Kevin Kish.

Arbitration contracts are commonly used by companies to handle disputes with both employees and customers and can often include bans on class actions. Proponents view them as a useful alternative dispute resolution tool and a means of avoiding costly and lengthy litigation.

Use of mandatory arbitration contracts has exploded over the last two decades. According to the Economic Policy Institute, 53% of nonunion private-sector employers have mandatory arbitration procedures.

Critics claim the increased use of arbitration agreements has perpetuated workplace abuses and allowed companies to keep embarrassing disputes out of the public limelight.

Lawmakers passed similar bills in 2015 and 2018, but former Governor Jerry Brown said they “plainly” violated federal laws and vetoed them.

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Categories / Business, Employment

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