A California Chamber of Commerce-opposed bill that could significantly drive up litigation costs for all California employers, if enacted, will be considered by the Senate Labor and Industrial Relations Committee today.
AB 465 (Hernández; D-West Covina), a “job killer” bill, 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 only serve 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.
Courts Have Already Authorized Mandatory Employment Arbitration Agreements
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 Already Exist for Mandatory, Pre-Dispute Employee Arbitration Agreements
The California Supreme Court has already mandated contractual provisions that must be included in a mandatory, pre-dispute 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
Accordingly, adequate protections already exist in predispute, mandatory employment arbitration agreements.
Arbitration Provides an Effective and Efficient Means to Resolve Employment-Related Claims
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 regarding employment arbitration found that arbitration was resolved within a year while litigation usually lasted over two years.
A 2006 study by Mark Fellows, Legal Counsel at the National Arbitration Forum, titled “The Same Result as in Court, More Efficiently: Comparing Arbitration and Court Litigation Outcomes,” 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. Eisenberg and Hill also found that, aside from civil rights disputes, higher-paid employees’ success rate in arbitration was basically the same as in litigation, with equivalent awards.
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.
Finally, a report published in July 2013 by the Heritage Foundation titled “The Unfair Attack on Arbitration: Harming Consumers by Eliminating a Proven Dispute Resolution System,” supported these findings by Fellows, concluding that “[a]rbitration is generally faster, cheaper, and more effective than the litigation system. It is not affected by cutbacks in judicial budgets or the increases in court dockets that significantly delay justice.”
AB 465 Will Send Disputes into the Overburdened and Underfunded Judicial System
In her March 2015 State of the Judiciary address, 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.
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. In the 2014 Chief Executive’s 10th annual survey on the best and worst states in which to do business, CEOs ranked California as one of the worst three states in which to do business. The magazine stated: “[a]ccording to Dun & Bradstreet, 2,565 California businesses with three or more employees have relocated to other states between January 2007 and 2011, and 109,000 jobs left with those employers.” As one CEO commented, “personal income tax rates and too much ‘big government’ regulation…public employee unions dominate California to its detriment.”
Similarly, the American Tort Reform Association’s “Judicial Hellholes Watch List” for 2014/2015 found that California was ranked as having the second worst litigation environment. 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.
Next Steps
AB 465 will be heard in the Senate Labor and Industrial Relations Committee on June 10. Follow @CAJobKillers on Twitter to learn what happens in committee today.
Staff Contact: Jennifer Barrera
