A federal judge on Monday temporarily blocked a new California law outlawing mandatory arbitration agreements that critics say can make it more difficult for workers to sue their bosses for sexual harassment.
U.S. District Judge Kimberly Mueller halted enforcement of the law, which had been set to take effect Wednesday, until she considers a request by the California Chamber of Commerce and other business groups for a preliminary injunction on Jan. 10.
About two-thirds of California non-union, private-sector workplaces have mandatory arbitration policies, according to a recent study by the Economic Policy Institute.
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Employers generally like the agreements because arbitration moves more quickly and costs less than going to court. Labor groups say the pacts leave employees at a disadvantage because they don’t have attorneys and rely on arbitrators who are often selected and paid for by the companies.
The business groups argued that the increasingly common practice is protected under federal law, is effective, fair to both sides and better than the alternative of going to court with employee grievances.
Federal law and some U.S. Supreme Court decisions restrict state governments from banning the agreements, but supporters said the California law just makes them optional. Employees could still choose to sign them but could not be punished for refusing.
The chamber said employers who relied on the federal law in good faith could have faced the potential for prosecution and imprisonment of up to six months under California's law.
The law's author, Democratic Assemblywoman Lorena Gonzalez of San Diego, said the state attorney general was correct in arguing that California has a duty to protect employees.
The law “simply says employers can't tell workers they will only get a job by signing away their rights,” she said in a statement. "When both parties choose arbitration freely, it can be a highly effective tool. But it doesn’t work when corporations say you won’t be hired unless you sign away your rights, which is what Big Business is trying to accomplish with this lawsuit.”
Aside from the U.S. and state chambers, the groups include the national and state retailers associations, National Association of Security Companies and national and state associations representing home healthcare services.
The judge ruled that the groups “have carried their burden, at this early stage on a tightly compressed timeline, by raising serious questions going to the merits and showing that the balance of hardship tips decidedly in their favor.”
They could face “irreparable injury” if the law takes effect and is later thrown out, Mueller said, noting that even a brief stoppage could “cause disruption in the making of employment contracts.”
The law would not affect existing arbitration agreements and would only apply to people hired after Jan. 1, 2020.
Gov. Gavin Newsom signed the bill into law this year after it was vetoed twice by his predecessor, fellow Democrat Jerry Brown.