Prior Legislative Efforts on Banning or Restricting Arbitration That Have Been Vetoed

Chris Micheli
Attorney and Lobbyist at the Sacramento government relations firm of Aprea & Micheli, Inc.

With pending legislation this Session that attempts to limit the use of arbitration in civil litigation, including SB 33 (Dodd) and SB 238 (Monning), there are at least five instances in which prior efforts results in a veto, including the following ones from three separate governors:

2000 – SB 1570 (Dunn) – Gov. Davis vetoed

The bill would have required an arbitration or mediation agreement in a mobile home tenancy contract to be set forth in a separate document from the rental agreement and would have prohibited management from conditioning the tenancy of a homeowner on accepting or signing an arbitration or mediation agreement. Gov. Davis in his veto message said: “I believe that mediation and arbitration clauses serve a vital purpose in that alternative dispute resolution is an efficient and effective forum for resolving disputes between landlords and tenants. Civil litigation is a more costly means of dispute resolution in a court system plagued by case backlogs.”

2002 – SB 1538 (Burton) – Gov. Davis vetoed

This bill would amend existing law to invalidate pre-dispute arbitration agreements between employers and employees as they relate to actions for employment pursuant to the Fair Housing and Employment Act (FEHA).

Governor Davis issued the following veto message:

“To the Members of the California State Senate:

I am returning SB 1538 without my signature.

SB 1538 would prohibit employers from requiring mandatory arbitration agreements as a condition of employment. There is no question that employees have a right to be free from discrimination and sexual harassment on the job. In fact, I have signed landmark legislation expanding rights under the Fair Employment and Housing Act:

* The California Civil Rights Amendments of 1999, AB 1670 (Kuehl) to give women, disabled workers, and others greater protection against discrimination; to extend anti-discrimination laws to applicants for employment and job training, and to prohibit discrimination against employees and applicants based on lawful conduct outside of employment.

* AB 1856 (Kuehl) which expressly provides that employees of any entity covered under the California Fair Employment and Housing Act may be personally liable for prohibited harassment perpetrated by a co-employee.

* AB 1001 (Villaraigosa) which amends the Fair Employment and Housing Act to prohibit discrimination in employment and housing on the basis of sexual orientation.

However, in these difficult economic times I am not prepared to place additional burdens on employers by preventing them from requiring alternative dispute resolution of employment claims.  Therefore, I must veto this measure.”

2003 – AB 1715 (Committee on Judiciary) – Gov. Davis vetoed

This bill would invalidate arbitration agreements between employers and employees that relate to employment practices covered by the Fair Employment and Housing Act (FEHA) that are required as a condition of employment or continued employment.

Governor Davis issued the following veto message:

“To the Members of the California State Assembly:

I am returning Assembly Bill 1715 without my signature.

This bill would make it an unlawful employment practice for an employer that has five or more employees to require an employee to waive any rights or procedures under the Fair Employment and Housing Act as a condition of employment.  I vetoed a similar bill last year.

As I stated last year, there is no question that employees have the right to be free from discrimination and sexual harassment on the job, and I have signed landmark legislation to further achieve that aim.

I do believe that the arbitration process needs to be addressed to ensure that it is fair and cost-efficient for all parties.  That is why I was pleased to sign SB 475 (Escutia) in 2001, which provided for the creation of ethical guidelines for arbitrators in alternative dispute resolution (ADR).  There may be other reforms to the arbitration process that the Legislature can adopt which will be fair to employees and employers alike.

California Department of Fair Employment and Housing laws apply to businesses with five or more employees.  This bill would apply to small businesses, the entities most likely to benefit from ADR.  In my State of the State address I pledged to help California’s small businesses to compete and thrive in California.  I am concerned about adversely affecting the ability of California business to cost efficiently resolve disputes.

I am proud of my civil rights record and proud of the many significant civil rights measures this Legislature has authored, passed and presented to me for signature.  I want to thank the sponsors, the supporters and all of the members of the Legislature for their dedication to insuring California has the strongest civil rights laws in the nation.  Attached is a partial list of civil rights bills passed by the Legislature that I was honored to sign.”

2010 – AB 1680 (Saldana) – Gov. Schwarzenegger vetoed

This bill would prohibit a person from requiring a waiver of the protections afforded under those provisions as a condition of entering into a contract for the provision of goods or services, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any court or other governmental entity.

Governor Schwarzenegger issued the following veto message:

“To the Members of the California State Assembly:

I am returning Assembly Bill 1680 without my signature.

This bill would prohibit businesses from being able to enter into contracts that require disputes to be resolved through arbitration. Arbitration has evolved into a productive and useful method for resolving disputes.  It allows parties the opportunity to resolve cases faster than traditional litigation and without incurring the enormous expenses associated with going to court. Since this measure limits the ability of parties to use arbitration.”

2015 – AB 465 (Hernandez) – Gov. Brown vetoed

This bill would prohibit any person from requiring another person, as a condition of employment, to agree to the waiver of any legal right, penalty, forum, or procedure for any employment law violations.

Governor Brown issued the following veto message:

“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.”

With vetoes of prior legislation attempting to limit or prohibit the use of arbitration agreements, those pursuing similar legislation this Session should be cognizant of these vetoed measures.

Chris Micheli is a Principal with the Sacramento governmental relations firm of Aprea & Micheli, Inc.

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