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California’s AB 51 Permanently Enjoined: Employers in the Clear with Limitations

19 Mar

Update Applicable to:Effective date
All employers with at least 1 worker in CaliforniaSee details below

What happened?

A federal district court has entered a permanent injunction barring the State of California from enforcing Assembly Bill (AB) 51, California’s law that purports to preclude employers from requiring arbitration agreements as a condition of employment, as it is preempted by the Federal Arbitration Act (FAA). 

What are the details?

AB 51 no longer stands as an obstacle to employers that wish to require arbitration agreements as a condition of employment in California, so long as the FAA applies and governs the agreement.

Although the State of California argued that the provisions from AB 51 could be severed, leaving only the ones that did not preempt the FAA, The Ninth Circuit found that AB 51’s provisions could not be salvaged through severance because the statute’s provisions all work together to burden the formation of arbitration agreements and, in any event, there was no authority in the legislation to sever the penalty portions of the law.

While the scope of the FAA is broad and generally applies to any business involved in interstate commerce, it also specifically exempts from its coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. (9 U.S.C. § 1.)”, meaning that contracts that fall into this exemption will not be covered.

Business Considerations

  • You can now require an employee or prospected employee to sign an arbitration agreement as a condition of employment where the arbitration agreement at issue is governed by the Federal Arbitration Act but should consider the statute exemption.
  • Given the complexities of the law regarding mandatory arbitration agreements, you are encouraged to consult an employment attorney to help you navigate these complex issues. 
  • You should consider assessing the need to offer additional consideration in a negotiation if an arbitration agreement is to be enforced.


Source References

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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