438 F.Supp.3d 1078
E.D. Cal.2020Background
- California enacted AB 51 (Cal. Lab. Code § 432.6; Cal. Gov’t Code § 12953), banning employers from requiring applicants or employees to waive any “right, forum, or procedure” under FEHA or the Labor Code as a condition of employment; the law carried civil and misdemeanor penalties and was to take effect Jan. 1, 2020.
- National and California business organizations (Chamber of Commerce, CalChamber, NRF, CRA, NASCO, HCAOA, CAHSAH) sued state officials seeking a declaration that AB 51 is preempted by the Federal Arbitration Act (FAA) and a preliminary injunction; the district court issued a TRO and then held a hearing on the preliminary injunction.
- Plaintiffs’ core claim: AB 51 is preempted because it singles out arbitration agreements and/or interferes with the FAA’s objectives (making arbitration agreements less available or more costly) and thus violates the Supremacy Clause.
- Defendants contended the statute regulates employer conduct to protect voluntary consent (not arbitration per se), does not invalidate arbitration agreements that are otherwise FAA‑enforceable, and argued jurisdiction/standing problems.
- The district court found it had federal-question jurisdiction and organizational standing, concluded plaintiffs were likely to succeed on the merits, that they would suffer irreparable harm, and granted a preliminary injunction enjoining enforcement of § 432.6(a)–(c) and Gov. Code § 12953 as applied to arbitration agreements covered by the FAA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction & standing | Federal jurisdiction under § 1331/Ex parte Young/Shaw; organizations have standing based on member injuries | No cognizable § 1983 right; alleged injuries speculative | Court: § 1331 jurisdiction exists; organizational standing satisfied (members likely harmed) |
| FAA preemption — unequal footing / discrimination | AB 51 singles out arbitration (targets waivers of forum/procedure) and places arbitration agreements on unequal footing | AB 51 regulates employer conduct to secure consent; does not invalidate FAA‑enforceable arbitration agreements | Court: AB 51 discriminates against arbitration and is preempted under § 2 (violates equal‑treatment principle) |
| FAA preemption — interference with FAA objectives | Civil/criminal penalties will deter employers from using arbitration, obstructing FAA’s purpose to promote arbitration | Law preserves consent and does not create a new contract defense; therefore it does not obstruct FAA | Court: AB 51 interferes with fundamental attributes and objectives of arbitration and is preempted |
| Irreparable harm, equities & severability | Employers face Hobson’s choice: incur unrecoverable costs and litigation or risk civil/criminal penalties; injury not remediable by damages; injunction in public interest | Plaintiffs’ harm overstated; alternatives exist | Court: Plaintiffs showed likely irreparable harm; balance of equities and public interest favor injunction; preemption applies to subsections (a),(b),(c) and related Gov. Code provision |
Key Cases Cited
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (establishes federal policy favoring arbitration)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA requires arbitration agreements be placed on equal footing with other contracts)
- Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017) (FAA governs both formation and enforcement; state rules that hinge on arbitration’s defining feature are preempted)
- Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996) (state rules that single out arbitration agreements are preempted)
- Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) (federal courts have § 1331 jurisdiction to enjoin state officials enforcing state law preempted by federal statute)
- Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) (standard for preliminary injunction: likelihood of success, irreparable harm, balance of equities, public interest)
- Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019) (state law may be preempted if it interferes with fundamental attributes of arbitration)
- Blair v. Rent‑A‑Ctr., Inc., 928 F.3d 819 (9th Cir. 2019) (discusses FAA preemption where state law frustrates arbitration)
- American Trucking Ass’ns v. City of Los Angeles, 559 F.3d 1046 (9th Cir. 2009) (illustrates irreparable harm where regulated parties face a Hobson’s choice)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (general contract defenses apply under FAA but rules that single out arbitration do not)