Legislature Should Reject Renewed Attack on Arbitration Agreements – Part 3

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

Proponents of AB 51 (Gonzalez), as they have with previous versions of this legislation, make a number of claims that are addressed below:

Claim: Arbitration Is a Secret Process in California – False

California Code of Civil Procedure Section 1281.96 requires a quarterly report by all private arbitration companies that administer arbitrations in this state.  These quarterly reports must be published on the arbitration company’s website and be made available to download without a fee and include the following information:

1) if the arbitration was designed through a pre-dispute agreement and if the agreement identified the arbitration company as the provider;

2) the name of the parties involved;

3) the nature of the dispute;

4) if an employment dispute, the employee’s wage/salary range;

5) who is the prevailing party in arbitration;

6) the total number of occasions the business or employer has been a party to an arbitration administered by the arbitration company;

7) the total number of occasions the business or employer has been a party to a mediation conducted by the arbitration company;

8) if the consumer party was represented by an attorney;

9) the date the private arbitration company received the demand for arbitration, the date the arbitrator was appointed, and the date of disposition by the arbitrator or private arbitration company;

10) the type of disposition of the dispute, if known, including withdrawal, abandonment, settlement, award after hearing, award without hearing, default, or dismissal without hearing;

11) the amount of the claim, the amount of the award, and any other relief granted, if any; and,

12) the name of the arbitrator, his or her total fee for the case, and the percentage of the arbitrator’s fee allocated to each party.

Although civil courts are open to the public and court documents generally are not confidential, a similar quarterly report of all civil disputes in California’s courts regarding the parties involved, claims alleged, and outcomes, as that required for arbitration companies, is not available.

Accordingly, the data that arbitration companies are required to collect and report is much more comprehensive and accessible for the public to review. The public would have to review dockets across the state to create a report comparable to that required for arbitration companies.

Claim: Employers Benefit from Paying for Arbitration – False

In California, employers are required to pay for any costs of arbitration that would not be incurred in civil litigation. See Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) (stating that an employee cannot pay any type of expense that the employee would not be required to pay if he or she filed the case in civil court).  As a result, businesses are required to pay for the arbitration.

Claim: Employers “Pick” the Arbitrator and Benefit as “Repeat Players” – False

In California, an arbitrator must be “neutral” and cannot be picked by the employer.  In Sanchez v. Western Pizza Enterprises, Inc., 172 Cal.App.4th 154 (2009) (overturned on other grounds), the court deemed an arbitration agreement unenforceable where the employer picked the specific arbitrator to decide the case as the arbitrator was not “neutral.”

In addition, California Code of Civil Procedure Section 1281.9 requires an arbitrator to disclose to all parties prior to the arbitration the following information:

1) familial relationships with any of the parties or lawyers involved;

2) personal relationships with any of the parties or lawyers involved;

3) service as an arbitrator for one of the parties or attorneys involved within the last five years, including all of the case information and the results of each case;

4) any other professional relationships with the parties or attorneys involved in the case;

5) any financial relationships with the parties or attorneys involved in the case; and,

6) any other matter which might create doubt as to whether the arbitrator can be impartial.

Once these disclosures are provided, an employee or consumer has an equal opportunity just as the employer does to pick an arbitrator from a panel of proposed arbitrators. For example, the American Arbitration Association’s Employment Arbitration Rules, Rule 12, sets forth the manner in which an arbitrator is determined, including that both sides receive an identical list of proposed arbitrators from which they can select for the forthcoming arbitration.

Presumably, if an arbitrator disclosed that he or she had numerous cases with the same employer or business and continually found in favor of that employer or business, a consumer or employee would not choose that arbitrator for their case.

Claim: Low-Wage Workers Can Only Recover by Going to Court – False

By banning arbitration, the only option left for employees to resolve many labor and employment claims is litigation. Several studies demonstrate that access to civil courts is not a realistic option for low wage employees. See University of San Francisco Law Review, “Employment Arbitration and Workplace Justice,” Lewis L. Maltby, President of the National Workrights Institute, 2003, “[I]t would be a terrible mistake to eliminate the use of arbitration as a tool for addressing and resolving employment disputes. Employees are more likely to have their day in court in arbitration than in litigation and are more likely to receive justice when the day is over. Employment arbitration needs to be preserved and improved, not abandoned.”

Another study (University of Michigan Law School, “Mandatory Arbitration: Why It’s Better Than It Looks,” Theodore St. Antoine, 2003) determined that “The vast majority of ordinary, lower- and middle-income employees (essentially, those making less than $60,000 a year) cannot get access to the courts to vindicate their contractual and statutory rights. Most lawyers will not find their cases worth the time and expense. Their only practical hope is the generally cheaper, faster, and more informal process of arbitration. If that is so-called mandatory arbitration, so be it. There is no viable alternative.”

Claim: Arbitration Results in Workers Losing Labor Law Protections – False

Labor and employment protections for workers in this state as equally valuable whether the venue for enforcing those laws are court or arbitration. Workers do not “sign away” their substantive rights by using arbitration to litigate their employment disputes. In other words, simply because arbitration is the chosen forum in a written agreement does not mean that the protections afforded by California’s labor laws are void.

Labor and employment laws can be equally enforced in arbitration as they can in court – arbitration only specifies the forum and does not result in any diminution in an employee’s substantive rights. For example, just because an agreement between an employer and employee requires arbitrating legal disputes does not mean the employer can reduce the statute of limitations on claims, or cap damages, or prevent certain claims, or not pay overtime or the minimum wage.

Finally, employers use arbitration to ensure a uniform manner in which to resolve legal disputes because these agreements provide predictability and they mitigate costs and attorneys’ fees prevalent in class action litigation. Ultimately, both parties benefit from resolving their disputes by utilizing an alternative dispute forum, rather than the courts, which are under-funded and under-staffed.

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