In what’s anticipated to mean more angst for California businesses, Gov. Gavin Newsom recently signed a new law, SB 365, that allows court cases to continue against employers while arbitration appeals are still pending.
California arbitration cases have recently been in front of the U.S. Supreme Court, federal appellate court, and state Supreme Court; arguing whether controversial state laws like the Private Attorneys General Act (PAGA) can override the Federal Arbitration Act (FAA).
SB 365 was designated a Job Killer by the California Chamber of Commerce and in a veto request letter, signed by a coalition of more than 70 business organizations, SB 365 is described as an attempt to “restrict the use of arbitration agreements altogether.”
The bill was authored by state Sen. Scott Wiener, D-San Francisco, with Attorney Gen. Rob Bonta as a co-sponsor.
SB 365 exacerbates the strain on the courts by taking cases that should be arbitrated and putting them into litigation, said Elizabeth Milito, executive director of the National Federation of Independent Business (NFIB) Small Business Legal Center.
Arbitration is very often faster than litigation and with civil cases involving employment matters, they don’t guarantee a right to a speedy trial, Milito said.
“Civil cases are not going to get the same speedy attention that a criminal case will. So arbitration is faster," Milito said.
The U.S. Supreme Court (Viking River Cruises) and Ninth Circuit Court of Appeals (Chamber v. Bonta) both have found for arbitration over litigation.
But with SB 365, the California state legislature is at it again, Milito said.
“They've already, I would say, sort of been swatted down," Milito said. “There is broad preemption by the Federal Arbitration Act, and the Supreme Court has addressed this. We have this federal law that tries to put things into arbitration when the parties have agreed to it, when there's a contract there.”
Many businesses include mandatory arbitration for dispute resolution, but Milito noted it’s a misnomer to say that arbitrators are beholden to employers.
“Both sides have to agree on who the arbitrator is going to be. And an arbitrator is not going to get business if they side all one way or all the other. I used to do arbitration, and you were looking for somebody who didn't always award the plaintiff, and I knew if it was somebody who always awarded the defendant, the other side would never agree to that person anyway. So I didn't even really consider that as a realistic pick," Milito said.
“So you usually find somebody who is middle of the road; they’re not always going to rule for employers, and they're not always going to rule for employees either, or they'll stop getting cases. And both sides have to agree to it.”
Milito noted that passage of SB 365 also means rising costs for the court system.
“Because what's going to happen then, the courts are going to come to the Legislature asking for more money,” Milito said. “Saying we need more money. We need more judges. We need more clerks. And I don't think a good answer is to be dumping more money into the courts when we can resolve things expeditiously and less expensively for both sides through arbitration.”
The Fiscal Comments for the Assembly Floor Analysis notes it’s about $1,000 an hour to run a courtroom.
“There will likely also be workload costs to the courts due to duplicative proceedings – in some circumstances, a trial court will continue spending court time and resources on proceedings that are rendered moot when the appellate court overturns the trial court's ruling and moves the dispute into arbitration," the analysis said. "It generally costs approximately $1,000 per hour to operate a courtroom. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund.”