Anti-Arbitration ‘Job Killer’ Passes Committee

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A California Chamber of Commerce-opposed bill that could significantly drive up litigation costs for all California employers, if enacted, passed a Senate policy committee this week on a party-line vote.

AB 465 (Hernández; D-West Covina) passed the Senate Labor and Industrial Relations Committee, 4-1, on June 10.

A “job killer” bill, AB 465 will increase pressure on the already-overburdened judicial system by precluding mandatory employment arbitration agreements, which both the California Supreme Court and the U.S. Supreme Court have already authorized.

As such, AB 465 will serve only to drive up litigation costs, increasing individual claims, representative actions and class action lawsuits against California employers of all sizes until such legislation can work through the judicial process to be challenged again.

Mandatory Arbitration

AB 465 directly conflicts with numerous prior and recent rulings from both the California and U.S. Supreme Courts, which have consistently stated any state law that interferes with the Federal Arbitration Act is preempted.

CalChamber believes AB 465 would ultimately be found to be preempted as well. However, the time, cost and uncertainty created for all California employers while any legal challenge to AB 465 is pending in the judicial system would be detrimental to businesses and unnecessary.

Adequate Protections Exist

The California Supreme Court has already mandated contractual provisions that must be included in a mandatory, predispute arbitration employment agreement as follows: 1) provide for a neutral arbitrator; 2) no limitation of remedies; 3) adequate opportunity to conduct discovery; 4) written arbitration award and judicial review of the award; and 5) no requirement for the employee to pay unreasonable costs that they would not incur in litigation or arbitration fees.

Arbitration agreements that have not included these mandatory provisions have regularly been struck down as unconscionable.

Arbitration Effective, Efficient

According to the U.S. District Court Judicial Caseload Profiler, there were 29,312 civil cases filed in California in 2014. As of June 2014, approximately 2,132 cases had been pending in federal court in California for more than three years and the median time from filing of a civil complaint to trial in Northern California was 31 months.

Comparatively, a 2003 article in the New York University School of Law legal journal authored by Theodore Eisenberg and Elizabeth Hill found that arbitration was resolved within a year while litigation usually lasted more than two years.

A 2006 study by Mark Fellows, legal counsel at the National Arbitration Forum, concluded that consumers and employees actually fare better in arbitration than in court.

Fellows specifically analyzed data from California and found that consumers prevail in arbitration 65.5% of the time, as compared to 61% of the time in court.

In a presentation to the George Washington University Law School in March 2011, attorney Andrew Pincus also agreed that the national data and evidence available demonstrate that consumers do the same if not better in arbitration than litigation, as one of the largest arbitration providers documented at least 45% of consumer arbitrations result in a damages award, while more than 70% of consumer-initiated securities arbitrations result in a recovery to the consumer.

Overburdened Judicial System

In her March 2015 State of the Judiciary address, California Chief Justice Tani G. Cantil-Sakauye commented that the judicial system is still falling short in its necessary funding, which has resulted in closed courthouses, reduced hours of service, and reduced number of employees.

This funding shortage has significantly increased the length of time to resolve civil lawsuits. Arbitration is a valuable alternative method to resolve disputes in an efficient manner and should be encouraged.

Instead, AB 465 will force more employment disputes into the already-overburdened judicial system, thereby delaying any recovery of potential wages for an employee even longer by essentially banning any predispute, mandatory employment arbitration agreements.

Key Vote

The June 10 vote on AB 465 in Senate Labor and Industrial Relations was 4-1:

Ayes: Jackson (D-Santa Barbara), Leno (D-San Francisco), Mendoza (D-Artesia), Mitchell (D-Los Angeles).

No: Jeff Stone (R-Temecula).

AB 465 will be considered next by the Senate Judiciary Committee.

Staff Contact: Jennifer Barrera

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Jennifer Barrera
About Jennifer Barrera
Jennifer Barrera, senior policy advocate, works with the executive vice president in developing policy strategy and represents the CalChamber on labor and employment, taxation and legal reform issues. Before joining the CalChamber in September 2010, she worked at a statewide law firm that specializes in labor/employment defense. She also advised small and large businesses on compliance issues, presented seminars on employment-related topics, and authored articles in human resources publications. Barrera earned a B.A. in English from California State University, Bakersfield, and a J.D. with high honors from California Western School of Law.