My husband was laid off by a small company in February. He was told they had no work but then they proceeded to bring the brother of one of the owners over to California from Arizona to work in this same position because they had no work in Arizona. We recently found out they lied about having no work and now hired someone to take the place of my husband's prior job at a lesser wage.

Is this legal?

Based SOLELY on the facts in your post, no, it is not illegal. He has no guaranteed right of rehire unless he was operating under a contract that specifically says otherwise.

Additionally, favoritism is not illegal. Terminating your husband to make room for the owner's brother may be unfair, but it's not illegal.