The legislative session came to an end on Friday night. So how did it go? This session, the Legislature addressed a variety of issues from wildfire liability, the #metoo movement, to making surfing the official sport of California. There were over 2,600 bills introduced this year and approximately 1,000 have made it the Governor’s desk for veto or signature. CalChamber positioned on over 200 bills, and identified 29 of those bills as Job Killers. Just one Job Killer made it to the Governor’s desk, AB 3080 (Gonzalez Fletcher). However, there are approximately 20 other bills awaiting the Governor’s review that CalChamber is requesting the Governor to veto as these proposals will create significant challenges for California employers.
AB 3080 has been portrayed as a part of the #metoo movement, but upon review, is much broader than just sexual harassment. It seeks to prohibit and limit settlement agreements, arbitration agreements, and class action waivers for any labor and employment claim. This includes claims that have nothing to do with sexual harassment such as meal periods, rest periods, paystub errors, sick leave, etc. It also subjects an employer to criminal liability for any violation of the various provisions.
Organized labor and trial attorneys are the sponsors of the bill, which is unique given their regular use of arbitration agreements. Almost all collective bargaining agreements (CBA) and contingency fee agreements contain mandatory arbitration provisions. Meaning that basically any dispute under the CBA is required to go through binding arbitration, and generally any dispute between an attorney and his/her client regarding representation (aside from fee disputes), must also go through binding arbitration. So, if both labor and trial attorneys themselves regularly utilize binding arbitration in their agreements, why are they so supportive of prohibiting arbitration agreements in non-union, private employer agreements? Our suspicion is that trial attorneys generally obtain higher fee awards in class action litigation than they do in individual arbitrations, and therefore pushing all disputes to civil court will result in more fees. And, for labor unions, it potentially is another tool to help organize.
Limiting the use of arbitration and settlement agreements for such disputes will undoubtedly result in more litigation and delay the early resolution of these claims for both the employer and employee. While that may ultimately result in higher fee awards for attorneys, it does not necessarily benefit the injured worker. State interference with arbitration also invites a ton of legal challenges based on preemption under the Federal Arbitration Act (FAA), further delaying the resolution of such claims. Since 2010, the Supreme Court has issued decision after decision instructing states that any attempt to undermine arbitration agreements is preempted. Some of the most recent decisions on FAA preemption have been issued by Justice Breyer and Justice Kagan, who are considered to be on the more liberal side of the bench.
AB 3080 now awaits the veto or signature of Governor Brown, who has until September 30th to make his decision. CalChamber is requesting the Governor to veto AB 3080, just as he did with a similar measure, AB 465 (Hernandez) in 2015. The reasons stated in Governor Brown’s veto message of AB 465 are still valid and applicable to AB 3080:
To the Members of the California State Assembly:
Assembly Bill 465 would outlaw the use of mandatory arbitration agreements as a condition of employment, making California the only state in the country to have this particular prohibition.
I have reviewed in depth the arguments from both sides about the fairness and utility of mandatory arbitration agreements. While most evidence shows that arbitration is quicker and more cost-effective than litigation, there is significant debate about whether arbitration is less fair to employees. The evidence on actual outcomes in arbitration versus litigation is conflicting and unclear, with some studies showing employees receive more in arbitration while other studies show the opposite.
While I am concerned about ensuring fairness in employment disputes, I am not prepared to take the far-reaching step proposed by this bill for a number of reasons.
California courts have addressed the issue of unfairness by insisting that employment arbitration agreements must include numerous protections to be enforceable, including neutrality of the arbitrator, adequate discovery, no limitation on damages or remedies, a written decision that permits some judicial review, and limitations on the costs of arbitration. See, e.g., Armendariz v. Foundation Health Psychcare Services, Inc. 24 Cal. 4th 83 (2000). If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.
In addition, a blanket ban on mandatory arbitration agreements is a far-reaching approach that has been consistently struck down in other states as violating the Federal Arbitration Act (“FAA”). Recent decisions by both the California and United States Supreme Courts have found that state policies which unduly impede arbitration are invalid. Indeed, the U.S. Supreme Court is currently considering two more cases arising out of California courts involving preemption of state arbitration policies under the FAA. Before enacting a law as broad as this, and one that will surely result in years of costly litigation and legal uncertainty, I would prefer to see the outcome of those cases.
For these reasons, I am returning AB 465 without my signature.
Edmund G. Brown Jr.