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On Jan. 10, 2020 Chief District Judge Kimberly J. Mueller further defined the scope, issues and duration of the Temporary Restraining Order (TRO) she initially issued on Dec. 30, 2019. We blogged about the new California legislation and the TRO issued in Chamber of Commerce of the United States of America v. Bacerra, No. 2:19-cv-02456 on <a href="https://www.employmentclassactionreport.com/arbitration/california-enacts-anti-arbitration-legislation-but-will-the-faa-limit-its-potential-impact-not-entirely/">Oct. 11, 2019</a> and <a href="https://www.employmentclassactionreport.com/arbitration/district-court-temporarily-enjoins-enforcement-of-californias-ab-51-anti-arbitration-provision/">Dec. 30, 2019</a> respectively.

Now, in a Jan. 10, 2020 minute entry Judge Mueller explained the scope of the TRO and the supplemental briefing permitted. The minute entry stated:
After careful consideration of the parties’ arguments, the court granted the parties leave to file supplemental briefing . . . addressing jurisdiction, including standing, and the parties’ positions with respect to the severability of any provisions of AB 51, if the court grants the motion for preliminary injunction at least in part.  * * * Pending the court’s issuance of an order on the preliminary injunction motion, the Temporary Restraining Order the court issued on December 30, 2019 shall remain in effect until January 31, 2020, while MODIFIED to clarify that defendants are temporarily enjoined from enforcing AB 51 to the extent it applies to arbitration agreements covered by the Federal Arbitration Act.
These qualifications relating to jurisdiction, standing, severability and coverage likely resulted from the parties’ briefing and arguments on Jan. 10th. During oral argument, Defendants took the position that the new law does not directly attack arbitration agreements but instead addressed their formation. They also argued that the Chamber of Commerce lacked standing to challenge AB 51.          

In their Opposition to Motion For Preliminary Injunction (Document 23), Defendants argued that any claim of irreparable harm by plaintiffs was “also undermined by the fact that more than a million California employees in the transportation industry alone are not even subject to the FAA,” citing Section 1 of the FAA, 9 U.S.C. §1. Indeed, after New Prime v. Oliveira, 139 S. Ct. 532 (2019) certain workers in the transportation industry may be excluded from FAA coverage by Section 1. That exclusion covers “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. §1. Defendants assume that “more than 1.16 million transportation workers in California are not covered as a result of the FAA exemption.” Yet they nowhere explain how they arrived at that number or acknowledge the division among the courts over the requirements and scope of the exemption.

Must the workers transport only goods or will carrying passengers qualify, and must the drivers cross state lines? Can workers qualify without transporting or handling goods? In other words, is the focus of the statute the activities of “workers” or the origin of the goods or the nature of a specific business? See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 118 (2001). Indeed, cases involving the Section 1 exemption are currently pending before the Seventh and Ninth Circuits. See Rittmann v. Amazon Com, Inc., 383 F. Supp. 1196 (W.D. Wash. 2019), (9th Cir. Appeal docketed No. 19-35281, May 3, 2019); Wallace v. GrubHub Holdings, Inc., 2019 WL 1399986 (N.D. Ill, Mar. 28, 2019), (7th Cir. Appeal docketed, Nos. 19-1564 and 19-2156, Mar. 28, 2019).

If Judge Mueller considers the potential impact of Section 1 of the FAA at this early juncture, it could affect a large swath of workers who may operate vehicles or work for transportation companies but may or may not ultimately be covered by the FAA depending on the particular tests used by the court. So many of the benefits of a broad injunction suspending the enforcement of AB 51 could be lost for thousands of workers even before the courts of appeal or the Supreme Court has spoken as to the proper test for exemption. And it will be difficult to undue the impact of AB 51 on the arbitration agreements of those workers. While limiting injunctive relief to the scope of FAA coverage may ultimately be of value, the controversies over the applicable Section 1 exclusion tests only complicates the many unresolved issues in the case.

Based on the minute entry Defendants’ supplemental brief must be filed by Jan. 17, 2020 and Plaintiffs’ supplemental reply brief no later than Jan. 24, 2020.

Bottom Line:

While California remains hostile to mandatory arbitration of employment claims, the district court is attempting to give FAA preemption its proper impact on this latest legislation.  Based on the latest minute entry, it appears that the preliminary injunction will be decided at the end of January.

Update on the TRO Issued in the Case Involving California’s AB 51 Anti-Arbitration Law