New legislation that expands the role of the Labor Commissioner in arbitration proceedings has raised concerns about how it will divert state resources and drive up business costs.
Under SB 1384, which Gov. Gavin Newsom signed Sept. 28, the Labor Commissioner’s representation role is broadened from the appeals process to the actual arbitration. It also provides for a merit investigation, a novel provision for which there is no current criterion.
It will be yet another test for businesses as they try to make it through the financial devastation of the COVID-19 pandemic, state Sen. Melissa Melendez, R-Lake Elsinore, told the Northern California Record by email.
“California will be facing major funding shortfalls in the coming years due to the COVID pandemic and small businesses are still facing extreme restrictions that prevent them from opening,” Melendez said. “This bill will divert scarce resources from the Labor Commissioner’s office which should prioritize enforcement of labor law instead of expanding their responsibilities into other activities.”
In the Assembly Floor Analysis, the California Employment Lawyers Association argued the arbitration forum is “more employer-friendly than the forum provided by our State Labor Commissioner. For workers who do not have access to counsel, they are at even more of a disadvantage trying to navigate the arbitration process on their own. Claimants who cannot afford private counsel face a higher prospect of a defeat in arbitration or a decreased settlement.”
State Sen. Bill Monning, D-Monterey, introduced SB 1384 on Feb 21. Melendez opposed the measure when it went before the Senate Floor for a vote on June 22.
A Yelp Economic Impact Report released in September shows nearly 20,000 businesses have permanently closed in California, the most of any state in the nation. An additional 20,000 are temporarily closed.
The California numbers are more than double those of Texas, which is number two in the Yelp report with nearly 9,000 permanent closures.
“California businesses are struggling and the continued lockdowns have brought our local economies to a grinding halt,” Melendez said. “This measure is clearly not going to help businesses recover from this pandemic and will only threaten their already precarious financial situation.”
At 11.4 percent, California’s current unemployment rate is the fifth highest in the nation.
“The unintended consequences of this law will be the additional focus the Labor Commissioner will place on representing claimants in arbitration instead of focusing on enforcing the existing labor laws that impact workers,” Melendez said. “Such actions could lead to the Labor Commissioner punishing small businesses that are already struggling to make ends meet.”
As the state applies more restrictions in certain areas, it’s compounded the challenge to stay in business.
“California small businesses are about to be asked to deplete their savings accounts as the state continues to prohibit them from reopening. This measure will only seek to expedite arbitration cases and place even more financial burdens on already struggling small businesses,” Melendez said.
Concerns also persist about whether the legislation is duplicative.
“California has an existing process for adjudicating arbitration cases,” Melendez said. “The Labor Commissioner has numerous avenues to help adjudicate employer/employee hardship claims. Additionally, numerous nonprofits have represented individuals in these processes before and would have been able to do so even if this law was not in place. In short, this law was searching for a problem that doesn’t seem to exist in California.”