California Ban on Mandatory Arbitration Agreements Enjoined
As California employers know, the California legislature passed a new law in 2019 barring employers from requiring employees to enter into arbitration agreements that cover wage and hour claims and FEHA claims (discrimination, harassment, retaliation). That law was supposed to take effect January 1, 2020 and would have applied to arbitration agreements entered into after that date. Enter helpful litigation.
Business groups led by the California Chamber of Commerce filed a lawsuit seeking to enjoin the state from enforcing the new law, arguing that it is preempted by the Federal Arbitration Act (FAA). In late December, a judge of the Eastern District (Judge Mueller) temporarily enjoined enforcement of the new law as to agreements governed by the FAA. After considering further briefing, the court has now granted a longer injunction against the law, which will be in place until the litigation is resolved on the merits.
California employers should continue to monitor this litigation as its ultimate outcome will impact the continued validity of mandatory employment arbitration agreements in the Golden State. For now, these agreements are still permissible for agreements governed by the FAA and most employers will stay the course with broad-based employment arbitration agreements.