## Facts

- California enacted Assembly Bill 51 (AB 51), codified principally at California Labor Code § 432.6, scheduled to take effect January 1, 2020.
- AB 51 barred employers from requiring applicants or employees, as a condition of employment or employment-related benefits, to waive any “right, forum, or procedure” for claims under the Labor Code or the Fair Employment and Housing Act.
- AB 51 prohibited retaliation or discrimination against individuals who refused to consent to such waivers.
- AB 51 applied to arbitration agreements and imposed enforcement mechanisms that included civil liability and potential criminal penalties.
- Business and employer associations that regularly use employment arbitration agreements sued state enforcement officials before AB 51’s effective date, seeking declaratory and injunctive relief.
- Plaintiffs moved for a preliminary injunction to prevent enforcement of AB 51, arguing it conflicted with and was preempted by the Federal Arbitration Act (FAA).

## Issues

1. Whether a pre-enforcement challenge to AB 51 presented a ripe, justiciable controversy supporting federal jurisdiction.
2. Whether the FAA likely preempts AB 51 because it deters or burdens the formation of employment arbitration agreements through prohibitions and penalties.

## Decision

- The court held the dispute was ripe and justiciable because AB 51’s effective date and penalty scheme created a credible, imminent threat of enforcement.
- The court found plaintiffs were likely to succeed on the merits that AB 51 is preempted by the FAA under conflict preemption principles.
- The court concluded plaintiffs showed irreparable harm because employers faced a coercive choice between abandoning arbitration programs or risking civil and criminal exposure.
- The court found the balance of equities and the public interest favored preventing enforcement of a state law likely inconsistent with federal law.
- The court granted a preliminary injunction enjoining state officials from enforcing AB 51 while the case proceeded.

## Legal Principles

- Pre-enforcement review is available when a statute creates a credible and imminent threat of enforcement that pressures regulated parties to change conduct to avoid penalties.
- Under FAA conflict preemption, a state law is invalid if it stands as an obstacle to Congress’s objectives of placing arbitration agreements on equal footing with other contracts and enforcing them according to their terms.
- The FAA preempts state rules that disfavor arbitration in purpose or practical effect, including rules that deter the making of arbitration agreements by attaching special burdens or penalties.
- The FAA saving clause does not permit state measures that, in operation, impose arbitration-specific deterrents rather than generally applicable contract defenses.

## Conclusion

The court preliminarily enjoined enforcement of AB 51, holding the challenge was ripe and concluding the statute likely conflicted with the FAA because it deterred employers from forming arbitration agreements through conditions-of-employment restrictions backed by civil and criminal penalties.


Chamber of Commerce of the United States v. Becerra, 438 F. Supp. 3d 1078 (E.D. Cal. 2020)