Governor Signs One Major Arbitration Bill and Vetoes Another

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

Arbitration, a form of alternative dispute resolution instead of litigation, has been under assault the past few years in California. The 2016 Legislative Session was not any different. As part of the 1,059 bills acted upon this year by Governor Jerry Brown, he signed one major arbitration bill and vetoed another. Two other significant arbitration bills were defeated by the Assembly earlier this year due to opposition by the business community.

In the end, four Senate bills made it to the Governor’s Desk this Session, but two of those did not have any opposition because amendments to address concerns were adopted by the authors. Those bills were SB 1007 (Wieckowski) and SB 1065 (Monning). The other two measures, however, had considerable lobbying for and against them. All four bills were acted upon by the Governor on September 25 and take effective on January 1, 2017.

SB 1241 (Wieckowski) prohibits an employer from requiring an employee who primarily resides and works in California to agree to a provision that would require the employee to adjudicate outside of California an employment dispute or deprive the employee of the substantive protection of California law related to that dispute. The main exception is when the employee was represented by legal counsel. In addition, SB 1241 makes any provision of a contract that violates these prohibitions voidable upon request of the employee. An adjudication includes litigation and arbitration and the bill allows injunctive relief and attorneys’ fees to be awarded. SB 1241 is effective for any contracts made, modified or extended after January 1, 2017.

The bill was supported by the California Employment Lawyers Association and the Consumer Attorneys of California. The author of the bill argued that “SB 1241 focuses in on two harmful kinds of clauses that can appear in an employment contract: (1) Choice of venue clauses that force a worker into an arbitration in another state, and; (2) Choice of law clauses that intentionally require that a different state’s laws govern the case. A worker who lives and works in California should never be forced to travel to a different state to exercise rights she has under California law.”

The bill was opposed by several business groups, primarily the Civil Justice Association of California, who argued that the bill was unnecessary as California state courts have routinely protected Californians from being forced out-of-state to litigate disputes. Moreover, Governors Brown and Schwarzenegger had previously vetoed similar legislation.

SB 1078 (Jackson), which was vetoed by the Governor, would have required in a consumer arbitration case the disclosure of any solicitation made within the last 2 years by, or at the direction of, a private arbitration company to a party or lawyer for a party. SB 1078 would have specified what is and what is not a solicitation under the bill. The bill would have prohibited the solicitation of a party or lawyer for a party during the pendency of the arbitration. In addition, the bill would have prohibited an arbitrator, from the time of appointment until the conclusion of the arbitration, from entertaining or accepting any offers of employment or offers of new professional relationships, and, in a consumer arbitration case, would have prohibited the arbitrator from entertaining or accepting any offers of employment as a dispute resolution neutral in another case from a party or lawyer for a party in the pending arbitration, with specified exceptions.

The bill was supported by the Consumer Federation of California, California Employment Lawyers Association, and Consumer Attorneys of California.  The author of the bill argued that “SB 1078 addresses issues of unfairness and bias in consumer arbitrations [by strengthening] current rules relating to targeted marketing activities of private arbitration companies as well as rules relating to the ability of arbitrators to enter into future arrangements with one party to a pending arbitration.”

The bill was opposed by the Civil Justice Association of California and several other groups who argued that SB 1078 would have impeded upon the ability of arbitrators to provide their services as an important alternative to civil litigation. Particularly for those businesses that regularly utilize arbitration rather than the civil court system, this bill could effectively preclude the time and cost benefits of arbitration.

In his veto message, the Governor stated:

I am returning Senate Bill 1078 without my signature.

This bill prohibits an arbitrator from accepting an offer of employment in a future case involving a party or lawyer in a pending arbitration, without prior written consent. The bill also adds prohibitions and disclosure requirements relating to certain solicitations made by private arbitration companies.

Arbitrators in California are already subject to stringent disclosure requirements under existing state law and Judicial Council standards. I am reluctant to add additional disclosure rules and further prohibitions without evidence of a problem. Further, the existing Judicial Council procedure for amending arbitrator ethics standards is a deliberative and public process that can more appropriately consider additional requirements.

Sincerely,
Edmund G. Brown Jr.

Arbitration will likely continue to be a popular topic for California legislators and the business community can expect to see additional measures considered when the Legislature reconvenes on December 5 for the upcoming 2017 Legislative Session.

Chris Micheli is an attorney and legislative advocate at Aprea & Micheli, Inc. in Sacramento.

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