A federal judge has halted California's plans to outlaw mandatory employee arbitration agreements over "serious questions" on the merits of the law raised by business groups.

U.S. District Judge Kimberly Mueller of the Eastern District of California granted a temporary restraining order on the enforcement of Assembly Bill 51, a law signed by Gov. Gavin Newsom in October barring employers from demanding workers agree to settle claims privately as a condition of their employment. 

The suit, filed by plaintiffs including the U.S. Chamber of Commerce, the National Retail Federation and the California Retailers Association earlier this month, claimed that the law is preempted by the Federal Arbitration Act. 

Mueller said she was convinced that allowing the statute to take effect, if preempted by the federal law, could disrupt the creation of employment contracts, especially given that a violation of the AB 51 would be considered a misdemeanor. 

"The court finds that plaintiffs have no other adequate legal remedy to preserve the status quo for a short period of time until the court can consider their motion for a preliminary injunction on a more well-developed record, with full opposition briefing as well," she wrote. 

The judge is also scheduled to hear plaintiffs' arguments for a preliminary injunction on January 10.

Mayer Brown's Donald Falk and Archis Parasharami and Bruce Sarchet of Littler Mendelson argued for the plaintiffs, which also included The National Association of Security Companies, Home Care Association of America and California Association for Health Services at Home.

"We are pleased that the court placed AB 51 on hold until it can determine whether the law is constitutional, so that in the meantime employers will not be exposed to criminal liability for including an arbitration agreement among the routine terms and conditions of employment," Falk said.

Chad Stegeman of the California Department of Justice represented the state. The department's press office did not immediately respond to a request for comment at the time of publication.