Chamber warns arbitration bill will kill jobs

gavel judgeWhen you take a job, should you be required to waive your right to have a future employment dispute adjudicated by the state labor commissioner or in civil court?

That has increasingly become the case for job applicants. Forty-three percent of companies nationwide now require employees to sign arbitration clauses precluding class-action suits, according to the Wall Street Journal. That’s an increase from 16 percent of companies in 2012. It’s paid off for businesses – employee class-action lawsuits have declined 5 percentage points since 2011, saving employers $136 million.

Assemblyman Roger Hernández, D-West Covina, believes mandatory employee arbitration agreements provide California businesses with an unfair advantage in employee disputes. He authored Assembly Bill 465, which would make it illegal to require such agreements as a condition of employment.

The bill passed the Senate Labor and Industrial Relations Committee along party lines on June 10 after a debate over the pros and cons of arbitration. Hernández said:

“This bill, AB465, will ensure the waivers of important employment rights and procedures arising under California law are made voluntarily and with the consent of the employee. Many of us are aware of the vast proliferation of waivers in arbitration clauses contained in consumer contracts. This problem is even more egregious in the employment context through the use of mandatory or forced arbitration clauses … forced upon workers on a take-it-or-leave-it basis.


“Let’s not fool ourselves, there is not an equal bargaining power between an employer and a worker who is desperate for a job to support themselves and their families. Especially in today’s still struggling economy, workers are desperate for a job, any job, and will almost always sign any document that is put in front of them as a condition for employment.


“This system is entirely unfair because the employer generally selects the arbitrator, who has a financial incentive to rule in the employer’s favor. This bill attempts to bring some balance to the equation by simply ensuring that these agreements are truly voluntary.


“All of the important bills that we work so hard to pass here in the California Legislature would be meaningless if on day one workers are forced to sign away enforcement of those rights. That is exactly what is happening in California today, much like it is in most parts of the country.”

Hernández noted that his bill is similar to AB2617, which became law last year. It bans the requirement of arbitration agreements affecting civil rights when consumers purchase goods and services.

Caitlin Vega, representing the California Labor Federation, said that her organization and the Teamsters sponsored the bill based on reports from employee representatives over the past couple of years:

“Increasingly when they were talking to workers who were experiencing wage theft, they would find that they hadn’t been paid for all of the hours, they were doing overtime off the clock, they weren’t getting meal periods. They would start to try to help these workers, only to discover that they had signed an [arbitration] agreement upon hire and as a condition of employment. In almost every case the worker did not even know that they had signed.


“The harm from these kinds of agreements goes beyond the impact on the individual worker. Obviously, no workers should be required to give up such core protections when it’s not knowing or voluntary. But beyond that, this takes away the ability to the state labor commissioner to even know what is happening in these work sites. These arbitration agreements are private, they are individual.


“They do not provide a forum for the state labor commissioner or anyone else to know what is happening and try to find a more systemic solution or to say, ‘Wow, there’s a lot of violation coming out of this one site or employer. Maybe we should consider a more efficient enforcement plan than just each individual worker having to take their claim separately to an arbitrator.’


“In addition, low-wage workers are highly unlikely to find counsel for an arbitration process. In almost every case they are going to be trying to navigate the process alone because there are no real incentives for lawyers to take those cases. In most cases what we are finding is what it means is not that the worker’s claim is stuck in arbitration but that workers don’t even bother to file a claim.


“We say that these contracts, like all adhesion contracts, have to be knowing and voluntary. They cannot be entered into because the worker was coerced. And in our view, being told you only get this job if you sign away your rights is inherently coercive.”

Chamber argues value of arbitration

Opposition to the bill was led by Jennifer Barrera, representing the California Chamber of Commerce, which has labeled the bill a “job killer.” She said the bill is unnecessary because the law already requires that contracts be entered into knowingly and voluntarily.

“But there is a level of responsibility that the law imposes on parties to actually read the document that you sign,” said Barrera. “The fact that you sign a document and you may not have reviewed the document – the law does impose some responsibility for you actually to have reviewed that.”

Barrera acknowledged that mandatory employment arbitration agreements are based on employers having more bargaining power than prospective hires.

“That is no different than a lot of the consumer arbitration that you have with regard to the sale of products,” she said. “All across our state you don’t have parties with equal bargaining power, and they are required to take the contract and can’t negotiate it [if they want to purchase that product or service].”

But she argued that there is nothing unfair about the arbitration process, which requires that the arbitrator be neutral, allows both sides to reject prospective arbitrators, allows for evidence discovery by both sides and requires the employer to pay the costs of the arbitration.

On that last point, she rejected the claim that arbitrators favor employers because employers are paying their fee. According to Barrera:

“My [business] members would be open to sharing the cost to avoid that unfair advantage from the financial incentive perspective. But right now under the law we are required to pay for arbitration. Companies generally hire an arbitration company. They don’t contract with a specific arbitrator. The company will provide a list of arbitrators for both sides to pick from.


“The arbitrators themselves are required to go through a very extensive list of disclosures before the arbitration. So they have to disclose any relationship they have had with any of the parties involved, any attorneys involved and any type of professional or personal relationship. So the employees are fully aware upfront of any relationship or prior cases that the arbitrator has had with the employer.


“So from our perspective there is not a ‘repeat player’ issue. And there are studies that show that employees fare better in arbitration if not the same. And if there was a repeat player [problem] you wouldn’t have that type of success rate.”

Barrera acknowledged that many arbitration agreements don’t allow employees to pursue a class action grievance. But she said that the winners in class actions are usually the attorneys with little winnings left over for each plaintiff.

She also disputed the argument that arbitration ties the hands of the state labor commissioner. “There’s nothing that an arbitration agreement can do to limit a state agency’s opportunity to investigate and pursue a claim,” she said.

Overburdened courts will take brunt of caseload

AB465 would lead to an increase in the caseload in California’s underfunded, overburdened court system, according to the Chamber’s website. The median time for a complaint reaching trial in northern California is 31 months. More than 2,100 cases had been pending in federal court for more than three years as of June 2014.

“[T]he American Tort Reform Association’s ‘Judicial Hellholes Watch List’ for 2014/2015 found that California was ranked as having the second worst litigation environment,” the Chamber said. “AB465 will neither help California’s litigation environment nor promote businesses’ ability to create jobs as it will drive up California employers’ litigation costs.”

Chris Micheli, representing the Civil Justice Association of California, told the committee that many employees can’t afford to wait years for resolution of their disputes.

“The sponsors have talked a lot about low-wage workers,” Micheli said. “Frankly, I’m not sure how they would benefit where arbitration is generally a more efficient and quicker process than the civil court system. So if we’re trying to protect low-wage workers subject to wage theft, I don’t know why we are shoving them in the civil court system.”

Complicated legal language

But Senator Hannah-Beth Jackson, D-Santa Barbara, who describes herself as “a recovering lawyer,” said she doesn’t like being forced to sign a binding arbitration agreement in order to receive care from her doctor.

“Sometimes, reading these contracts, you need a lawyer to understand them,” she said. “They are not easily understood. But you do sign them because you assume you will have some protections. … What’s your choice? You’ve waited two months for your doctor’s appointment, you feel lousy, you’re in their office. You finally have your appointment and are told ‘take it or leave it.’ To me that’s not an equally bargained agreement.”

Scott Bernstein, representing the California Employment Lawyers Association, rebutted Barrera’s argument that arbitrators don’t favor the businesses that pay their fee, often at their legal hourly billing rate.

“There’s massive repeat player bias,” he said. “They want that work. So who are they going to upset? If they upset the worker, if they do something unfair to an individual worker in an arbitration, what does it matter? That worker will never be in another arbitration in his or her life.

“The people that founded this country understood the people resolving disputes have to be independent, and they created an independent judiciary. Do we have some judges who we’d rather not have on the bench? Yeah, that’s the price we pay. It’s an insurance policy to have an independent third branch.”

The committee passed AB465 by a 4-1 vote with the lone no vote cast by Senator Jeff Stone, R-Temecula.

“I do have some grave concerns,” Stone said. “We still have high unemployment numbers. People are very happy to get a job. As a small businessman, arbitration is very attractive to employers, especially in the state of California. …

“You get as much of an opportunity, I think, to get a fair arbitrator as you will ultimately getting a fair judge. The difference is that you’re going to get that arbitrator a lot sooner rather than later. Because when you get into our congested court system our employees are going to wait months, maybe in some cases a year or more before they get the compensation that may be due.”

The bill is scheduled to be considered by the Senate Judiciary Committee on June 23.

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