Anti-Arbitration Job Killer Awaiting Vote by Senate

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A California Chamber of Commerce-opposed job killer bill that if enacted could significantly drive up litigation costs for all California employers as well as increase pressure on the already-overburdened judicial system is on the Senate Floor.

AB 465 (R. Hernández; D-West Covina) precludes mandatory employment arbitration agreements, which is likely pre-empted by the Federal Arbitration Act. The bill will serve only to increase litigation costs of 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 once again.

Increased Litigation

The CalChamber opposes AB 465 and identified it as a job killer because:

Existing Contract Law Already Requires All Employment Arbitration Agreements to Be Freely and Mutually Executed. Any contract must be knowing and voluntary or else it cannot be enforced. This standard is applicable to arbitration agreements, including those that are mandated as a condition of employment.

However, simply because an arbitration agreement is an adhesion contract, which is made as a condition of employment, does not mean the employee has not freely consented. Numerous decisions issued by the California and U.S. Supreme courts have determined that, like other adhesion contracts that are integrated into consumer product sales, an employee freely consents to the agreement.

Existing Law Already Mandates All Employment Arbitration Agreements to Be Conscionable. While courts have upheld mandatory arbitration agreements as executed with free consent by the employee, the courts do recognize that an employee does not have the bargaining power to negotiate terms of the contract and, therefore, the courts have set forth mandatory provisions that must be included in the arbitration agreement to make the agreement fair. Arbitration agreements that have not included these mandatory provisions have regularly been struck down as unconscionable.

Arbitration Does Not Favor Employers Under the “Repeat Player” Theory. Proponents of AB 465 claim that employers obtain some favorable advantage in arbitration because they pay for the arbitration and often are a “repeat player” so the arbitration provider wants to ensure their continued business. This allegation is factually unsupported.

Studies Prove Employment Arbitration Is More Efficient and Provides Higher Success Rates for Employees. 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 2004 paper in the Cornell Law Faculty Publication by Theodore Eisenberg and Elizabeth Hill found that employment arbitration was resolved within a year while litigation usually lasted more than two years; and that employee claimants win a higher proportion of arbitrations than trials.

AB 465 Is Broader Than AB 2617 (Weber; D-San Diego) and Includes All Employment Claims. Proponents of AB 465 have suggested that this bill is the same as AB 2617 (Weber; D-San Diego), which was signed by Governor Edmund G. Brown Jr. last year.

This comparison is flawed. AB 2617 applied only to arbitration agreements for the resolution of hate crimes under the Unruh Civil Rights Act. AB 465 seeks to ban all pre-dispute arbitration agreements made as a condition of employment for any and all claims arising during the employment relationship.

AB 465 Will Force Low-Wage Employees to Overburdened Courts. Banning pre-dispute employment arbitration agreements will force low-wage employees to overburdened courts. Assuming an employee can find an attorney willing to pursue the case, an employee will potentially have to wait years for a resolution, as opposed to arbitration that is generally resolved in less than a year.

AB 465 Is Pre-Empted by Federal and State Laws. AB 465 directly conflicts with these 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 pre-empted.

The CalChamber believes AB 465 would ultimately be found to be pre-empted 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.

AB 465 Will Create a Worse Litigation Environment and Lack of Job Creation. California’s economic recovery depends on its ability to create an environment where job creation can flourish. AB 465 will neither help California’s litigation environment nor promote businesses’ ability to create jobs as it will drive up California employers’ litigation costs.

Action Needed

AB 465 awaits a vote by the Senate.

Contact your senator and urge him/her to oppose AB 465.

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.