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California Legislature Passes Three Bills Impacting Arbitration. Two Signed, One Vetoed By Governor Brown
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The California Legislature late this summer passed and sent to the Governor three bills aimed at regulating consumer and employment arbitration. On September 25th a busy Governor Brown signed two of the bills into law and vetoed one as not necessary.

We reported on the bills, which would be effective for any contract “entered into, modified, or extended on or after January 1, 2017,” in SAA 2016-16. During the summer, the Assembly passed the bills with amendments. The Senate accepted the changes, passed all three bills, and sent them to Governor Brown.

Employment Adjudication Locale Bill is Now Law

SB 1241 amends the law by adding a section 925 to the Labor Code to: “prohibit an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would require the employee to adjudicate (ed: arbitration or litigation) outside of California a claim arising in California or deprive the employee of the substantive protection of California law with respect to a controversy arising in California.” The new law also makes any provision of a contract that violates these prohibitions voidable upon request of the employee, provides for injunctive relief, and authorizes a court to award reasonable attorney’s fees. The law has an interesting carve-out for an employee “who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.”

So is Court Reporter Bill

Also passed by the Legislature and signed by Governor Brown is SB 1007, which gives arbitration parties the “right to have a certified shorthand reporter transcribe any deposition, proceeding, or hearing as the official record. The new law requires a party requesting a certified shorthand reporter to make his or her request in a demand, response, answer, or counterclaim related to the arbitration, or at a pre-hearing scheduling conference at which a deposition, proceeding, or hearing is being calendared. The law would also require the party requesting the transcript to incur the expense of the certified shorthand reporter, except as specified in a consumer arbitration. The revised statute authorizes a party whose request has been refused by the arbitrator to petition the court for an order to compel the arbitrator to grant the party’s request to have a certified shorthand reporter transcribe any deposition, proceeding, or hearing, and for an order to stay any deposition, proceeding, or hearing pending the court’s determination of the petition.”

Arbitrator Neutrality Bill Vetoed

On August 30th, the California Legislature passed and sent to the Governor SB 1078, which aimed to provide greater transparency in arbitration in general and consumer arbitration in particular. The bill would have added a new Section 1281.65 to the California Code of Civil Procedure. As described in the text, it would have in any case required arbitrators to disclose “[a]ny offers of employment or new professional relationships as a lawyer, expert witness, or consultant from a party or lawyer for a party in the pending arbitration.” Additional disclosure requirements in consumer cases were: “Any offers of employment as a dispute resolution neutral in another case involving a party or lawyer for a party in the pending arbitration unless all parties to the pending arbitration, including the lawyers in the arbitration, have conferred and agreed in writing, before any solicitation of the arbitrator, to allow offers of future employment as a dispute resolution neutral to be made to the arbitrator.” The bill also provided that its provisions were severable, and contained an SRO carve-out. The Governor’s Veto Message explained that the bill was a cure in search of a disease, since safeguards are already in place: “Arbitrators in California are already subject to stringent disclosure requirements under existing law and Judicial Council standards. I am reluctant to add additional disclosure rules and further prohibitions without evidence of a problem.”

(ed: *We’re with Governor Brown on all three. As we said earlier of the first two bills: “We’re not at all convinced that these bills are slam-dunk Federal Arbitration Act preemption candidates. Why? SB 1241 applies to all consumer and employment contracts and in all fora – court or arbitration. By not singling out arbitration for disparate treatment, the bill may not run afoul of Concepcion. Likewise, SB 1007 provides a right that already exists in litigation and for that matter at FINRA arbitration. Recall as to the latter that 11 years ago in Jevne v. Superior Ct., 111 P.3d 954 (Cal. 2005) and Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005), the California Ethics Standards for Neutral Arbitrators in Contractual Arbitration were found to be preempted by the 1934 Act as to SRO arbitration programs. In that case, the Standards conflicted with the SRO arbitration rules; here SB 1007 seems to be consistent with them.” **We’re not surprised by the SB 1078 veto. Recall that we reported in SAA 2015-38 that Governor Brown in October 2015 vetoed AB 465, which, if enacted into law, would have banned mandatory predispute arbitration agreements in employment contracts. Governor Brown’s Veto Message explained that the statute would have made California “the only state in the country to have this particular prohibition” and that safeguards were already in place.) (SAC Ref. No. 2016-37-04)

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