Legal challenges to 2020 Employment laws have begun!
As suspected, legal challenges have been made to both AB-51, which prohibits mandatory arbitration in employment, and AB-5, the new independent contractor test. Below is a brief summary of the challenges and what it may mean for your business.
As of December 30, 2019, California is prohibited from enforcing AB-51. Mandatory arbitration is currently still binding.
The United States and California Chambers of Commerce along with other interested parties filed an action to enjoin California’s implementation of AB-51 and sought a temporary restraining order to halt the January 1, 2020 effective date. The Court determined that it was more likely than not that the moving party (Chamber of Commerce) would prevail at the January 10, 2020 hearing barring implementation of the law. The primary argument for barring the implementation is that it is preempted by the Federal Arbitration Act (“FAA”). A link to the Court’s ruling can be found here. At the January 10 hearing, the Court requested supplemental briefing from the parties regarding jurisdictional issues and extended the temporary restraining order until January 31, 2020. The temporary restraining order has been modified to limit its application and protection to arbitration agreements covered by the FAA. The FAA is applicable to an employment relationship involving interstate commerce, which is interpreted broadly.
We anticipate that the Court will find that AB-51 is preempted and that mandatory arbitration agreements, if lawfully drafted, will continue to be enforceable.
AB-5 has faced similar legal challenges, however, there has not been an order providing a blanket prohibition of its enforcement. As a reminder AB-5 codified a three-part test called the ABC test to determine whether someone providing services to a company is an employee or independent contractor. All three parts must be shown, which has led many industries vulnerable to claims that contractors are in fact employees. The law provided numerous exemptions from the ABC test, but not all industries were granted such exemptions. Independent truck drivers, freelance journalists, and ride-share and delivery drivers (Uber and Postmates) all filed suit against the state of California concerning the enforcement of the law. So far, only truck drivers have obtained a temporary restraining order as to its enforcement. On January 16, 2020, the Court granted a preliminary injunction prohibiting California from enforcing AB-5 against truck drivers during the lawsuit. The state is expected to appeal the decision to the Ninth Circuit. You can read the Court’s decision here.
For now, the law is in effect for everything and everyone else.