California Turns Down Bill That Would Make It Easier To Sue Employers

Thanks to Governor Jerry Brown’s veto of Assembly Bill 465 (A.B. 465), employers in California are permitted to place arbitration agreements in employment contracts without further restrictions. A.B. 465 provided that arbitration agreements, and other waivers of legal rights must be “knowing and voluntary and in writing, and expressly not made as a condition of employment.” The Bill would have also banned mandatory arbitration. Mandatory arbitration requires employees to go to arbitration in the event of an employment dispute instead of taking the matter to court. In short, California employers may continue to enforce arbitration agreements set forth in employment contracts.

What is Arbitration?

Arbitration is an alternative dispute resolution (ADR) method. ARD is a means of resolving conflicts outside of the court system. The two most common forms of ADR are arbitration and mediation.

• Mediation: Mediation is a process where disputing parties reach a mutual agreement with the help of a third-party mediator. Parties in mediation usually retain significant control over the process. In mediation, the parties in dispute must reach their own agreement; the mediator cannot decide the outcome. The agreement reached by the parties is usually non-binding. Thus, parties may pursue litigation after the conclusion of mediation.
• Arbitration: Arbitration is a process where a neutral arbitrator (usually a lawyer or a retired judge) make a decision following a hearing. Usually, the arbitrator’s decision is binding and enforceable, unless the parties agree that it is non-binding. Because the decision reached in arbitration is binding, the arbitrating parties cannot litigate the final decision in court, however, awards can be appealed on a very limited basis. If the appeal contesting an arbitration award is successful the arbitration award is voided and the dispute may be litigated in court.

Arbitration is usually initiated when a court orders the parties to arbitrate or there is an applicable arbitration clause related to the dispute. For example, employers may place arbitration clauses in an employment contract that sends employment disputes must be submitted to arbitration.

Arbitration v. Litigation?

Arbitration is frequently a preferred alternative to trial when resolving disputes. Primarily, parties prefer arbitration over litigation because arbitration is a faster process and frequently less expensive than resolving an issue in court. Arbitration is also not part of the public record, unlike court. Thus, if parties want to maintain a degree of confidentiality, arbitration is more ideal. 

Since arbitration is usually a more cost effective and confidential method of handling disputes,  employers usually prefer arbitration. If California limits employers ability to arbitration employment law claims, employers could locate elsewhere, which could create a loss of jobs in the state.

Critics of arbitration and supporters of A.B. 465 have largely argued that allowing mandatory arbitration agreements in employment contracts are unfair to employees. A.B. 465, as discussed above, would have limited employers’ ability to place arbitration agreements in their employment contracts.  It appears coercive to mandate that employees with otherwise viable employment law claims must submit their cases to arbitration. Employment attorneys note that frequently employees with viable cases receive far less in arbitration awards than they would have received in a traditional jury trial. Thus, the veto would appear to be a loss for employees in California.

Despite the apparent disadvantage the veto might have for employees, existing law in California already protects employees from seemingly unfair arbitration agreements. Under standard contract law, if an arbitration agreement is unconscionable or overly favorable to the employer, the arbitration agreement will be invalid.  Moreover, California law also requires employers to pay for arbitration should a dispute arise. Thus, employees with disputes have a cost-effective method of resolving employment disputes.

What Does the Veto Mean for California Employers?

Governor Brown’s veto means that employers in California may continue to place mandatory arbitration agreements in employment contracts. Nevertheless, employers must still adhere to California laws regulating arbitration that are already in place.