On January 1, 2024, a federal district court permanently enjoined the State of California from enforcing AB 51, the law which sought to prohibit the use of employment-related mandatory arbitration agreements.

As discussed here, shortly after enactment AB 51 was immediately challenged and an injunction on enforcement granted by the U.S. District Court. However, the injunction was short-lived as a divided Ninth Circuit Court of Appeals panel reversed the injunction (in part) which prompted the immediate filing of a petition for rehearing by the full court.  On August 22, 2022, instead of granting or denying the petition for rehearing, the Ninth Circuit made a surprise decision to withdraw its prior opinion and grant a full panel rehearing.  At a February 15, 2023 rehearing, the Court affirmed the original district court ruling which held that AB 51 was preempted by the Federal Arbitration Act (FAA).

The January 1, 2024, order permanently enjoining enforcement brings an end to the AB 51 controversy.

Under the terms of the injunction, the State of California, including the state’s Labor and Workforce Development Agency and Civil Rights Department, are:

• “Enjoined from enforcing sections 432.6(a), (b), and (c) of the California Labor Code where the alleged “waiver of any right, forum, or procedure” is the entry into an arbitration agreement that is covered by the FAA, 9 U.S.C. §§ 1-16; and
• Enjoined from enforcing section 12953 of the California Government Code where the alleged violation of “Section 432.6 of the Labor Code” is the entry into an arbitration agreement that is covered by the FAA.”

What Does This Mean for Employers?

The Court’s issuance of a permanent injunction makes clear that there are no legal obstacles standing in the way of an employer’s decision to require arbitration agreements as a condition of employment or continued employment in California; so long as the FAA applies and governs the agreement. No appeals or further legal challenges are anticipated.

Employers should consult with legal counsel to confirm if any new or existing arbitration agreements are subject to and governed by the FAA.