On August 22, 2018, the California Senate voted to approve AB 3080 a bill that bans mandatory arbitration agreements for all claims of employment discrimination, retaliation, and harassment, as well as wage and hour claims. The bill is currently on Governor Jerry Brown’s desk, awaiting his signature or veto. If signed, the new law would apply to any employment contracts “entered into, modified, or extended” on or after January 1, 2019.  The bill contains other major changes to laws governing disputes arising out of the employment relationship.  For purposes of this post, I focus only on the ban on arbitration agreements.

The arguments against compulsory arbitration agreements are well known.  In October 2015, the New York Times ran three-part series with articles entitled entitled Arbitration Everywhere, Stacking the Deck of JusticeA Privatization of the Justice System and In Religious Arbitration, Scripture is the Rule of Law.

Naturally, The Times used anecdotes to run through the parade of horrible wrought by subjecting unwitting consumers and employees to compulsory arbitration.

As one who makes a living as a neutral, I am, of course, biased in favor of arbitration.  This is not to say that some of the concerns are not legitimate.  But, for every concern raised about arbitration, I can find a comparable concern about the judicial process.  The real issue is, of course, money.

Plaintiffs’ attorneys, consumer advocates, and others who most strongly oppose arbitration are in my view, primarily concerned with their own financial stake in litigation.  There’s nothing wrong with this. As an arbitrator, I am concerned that banning compulsory arbitration agreements will adversely affect my income.  But let’s not harbor any illusions that most of the opposition to compulsory arbitration has much to do with concerns over the fairness of the process.  Arbitrators are far less likely to award individuals tens of millions of dollars in emotional distress and punitive damages than are juries.

Don’t believe me. Try a thought experiment.  Ask your favorite consumer attorney if she would support a system where a jury determines liability but a judge awards damages. Or, how about a system where punitive damages go to the state?  Employment cases tried before arbitrators are “less valuable” because the downside risk to the employer is much less than it would be if the same case were tried to a jury.

In any event, a ban like that included in AB 3080 is, most likely, preempted by the Federal Arbitration Act.  The preemption argument is well made in this letter submitted by Carothers DiSante and Freudenberger LLP.

Let’s see what Governor Brown does.  We know what Governor Newsome will do if he gets the same bill next year.