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California Enacts Arbitration Bills That Add Protections For In-State Employees

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  • Posted on: Oct 26 2016

Today’s newspapers often report stories about the perils of arbitration. In 2015, for example, The New York Times published a series of articles titled, “Beware the Fine Print” – a special report examining how arbitration clauses buried in contracts deprives Americans of their constitutional rights. (Silver-Greenberg & Corkery, In Arbitration, a Privatization of the Justice System, N.Y. Times (Nov. 1, 2015).) According to the California Assembly Committee On Judiciary, an increasing number of businesses are using arbitration provisions in order to evade California law. Among other things, these provisions allow businesses to select the laws or venues of another state (and even another country) that the business deems to be favorable to its interest to govern a legal dispute if one should arise. Since the bargaining power often rests with the business, the committee found that Californians are often forced to agree to such terms. Given the burden and expense of traveling to another forum, and the favorability of the selected law to the business interest, the committee concluded that most Californians were unlikely to vindicate their legal rights.

To protect Californians, and in particular California-based employees, the Legislature sought to level the playing field by ensuring that California-based employees could not be forced to litigate or arbitrate their California-based claims outside of California, under out-of-state laws, as a condition of employment.  Accordingly, it passed SB-1241.

SB-1241 targets choice of venue provisions found in employment agreements that require a worker to arbitrate in a different state and choice of law provisions that select a different state’s law to control the arbitral proceeding. In particular, the bill prohibits an employer, as a condition of employment, from requiring an employee who primarily resides and works in California to agree to a provision that would require the employee to adjudicate (i.e., either through litigation or arbitration) a claim arising in California outside of the state or deprive the employee of the substantive protection of California law with respect to a controversy arising in California. The bill makes any provision of a contract that violates the prohibitions of the law voidable upon request of the employee and requires a dispute over a voided provision to be adjudicated in California under California law. The bill further specifies that injunctive relief is available to the employee and authorizes a court to award reasonable attorney’s fees should the employee prevail. Notably, the bill excepts an agreement that is negotiated by counsel on behalf of an employee.

The law applies to contracts entered into, modified, or extended on or after January 1, 2017.

In addition to the foregoing law, the California Legislature sought to fill a gap left in the sections of the California Code of Civil Procedure governing arbitration proceedings. As noted by the California Senate Rules Committee, while certain California laws and procedures govern all aspects of a non-judicial arbitration – from the conduct of arbitrators, private arbitration companies, and the arbitration proceedings, to the enforcement of arbitration agreements and arbitration awards, as well as related judicial proceedings – it is silent as to the right of the parties to have a court reporter in an arbitration proceeding.

The California Legislature enacted SB-1007 so that a party to an arbitration can have a court reporter present to create an official record of the proceeding. The law requires the party requesting a certified shorthand reporter to make the request in his/her demand for arbitration, or a response, answer, or counterclaim to a demand for arbitration; or at a pre-hearing scheduling conference at which a deposition, proceeding, or hearing is being calendared.  If the arbitrator refuses the request, then the party can petition a court for an order to compel the arbitrator to grant the party’s request. The petitioning party may include a request for an order to stay any deposition, proceeding, or hearing related to the arbitration pending the court’s determination of the petition.  For indigent consumers in consumer arbitration, a court reporter will be provided upon request at the expense of the non-consumer party.

On September 25, 2016, California Governor Jerry Brown signed both bills into law.


With regard to SB-1241, this Blog believes that the playing field should be level. This is not to say that employers do not have an obligation to protect their rights. However, the line gets crossed when out-of-state employers impose choice-of-law and forum selection provisions on their workers, many of whom are unable to obtain counsel to negotiate on their behalf, in order to make it more difficult for employees to pursue legitimate claims, and ensure that any disputes are decided in a forum that is most favorable to the employer.

As the California Employment Lawyers Association wrote in support of the SB-1241:

Most workers lack the resources to travel across the country — let alone around the world — to pursue an employment claim in another state or country. The problem is particularly acute for lower income workers and disabled workers. Those workers that do have the resources and ability to travel might well find that the protection that they had under California law does not exist, or is not as comprehensive, in the jurisdiction that will be deciding their dispute. [ . . . ]

With regard to SB-1007, having a transcript of proceedings is important to a participant’s ability to appeal an adverse arbitration decision. As State Senator Bob Wieckowski stated in support of SB-1007:

Consumers are frequently forced into binding arbitration if they purchase common goods or services. When they go into arbitration it is critical that they have a court reporter present to create an official record.  This will protect their due process rights and provide a reviewing court with evidence of bias or misconduct if any occurs in the arbitration proceedings.

The ability for a reviewing court to have evidence of bias or misconduct cannot be underscored enough. This Blog previously wrote about such a situation last month. Here. In that case, Royal Alliance Associates, Inc. v. Liebhaber, B264619 (Cal. Ct. App. Aug. 30, 2016), the Court of Appeals vacated an expungement award because, as the transcript of proceedings showed, the arbitrators improperly failed to allow counsel the opportunity to present testimony and evidence at the hearing.

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