Background

On October 10, 2019, Governor Newsom signed AB 51, which makes it unlawful for employers to require newly-hired or existing employees to arbitrate workplace disputes after January 1, 2020.  Employees already bound to legally-enforceable arbitration agreements prior to January 1 are not affected by the new law.

The new law adds section 432.6 to the California Labor Code.  It is worth noting that former Governor Brown refused to sign a similar bill into law last year, stating that it was preempted by federal law.  It is anticipated that the new law will be challenged in the courts, and many experts believe that it will ultimately be overturned, perhaps after years of litigation.

In essence, California employers have until the end of the year to bind existing employees to legally-enforceable arbitration agreements and/or policies.  After January 1, it is too late to require new employees, or existing employees not bound by such polices, to arbitrate disputes.

Why Arbitration?

As readers of this publication are aware, it is the author’s opinion that there are few protections more important to employers than the right to require workplace disputes to be resolved by arbitration, as opposed to California’s traditional civil ligation system.  This is because civil litigation usually culminates with a jury trial.

Predictably, employers usually find jury trials to be a futile endeavor, as it is estimated that plaintiffs prevail in approximately 70 percent of jury verdicts involving employment cases in California.  This is an anomaly unknown to any other area of the law, where verdicts are evenly distributed between plaintiffs and defendants, and hover around 50 percent for each side.

What explains the anomaly?  Experts agree that the answer to that question resides with the fact that the communities from which juries are drawn are overwhelmingly populated with employees, as opposed to business owners or managers. As a result, statistics show that juries tend to be biased against employers.

The Scary Part

As scary as this is, it may not be the most frightening part of the story.  Currently, it is not unusual for a labor dispute to cost employers the better part of a million dollars in defense costs alone, and often more, to defend an employment dispute through a jury trial.  The sheer expense of defending a lawsuit in court often forces the employer to settle even weak cases on terms dictated by the plaintiff, as the only alternative that will avoid insolvency.

The Antidote

Legally enforceable arbitration policies address these problems by 1) eliminating the jury bias problem and 2) reducing the costs of defending a lawsuit by as much as 90 percent.    Arbitrators do not share the inherent anti-employer bias seen in employee-dominated juries.  In addition, the cost of defending a case through the arbitration process typically requires a fraction of the time and expense of a jury trial.  This means that employers can afford to defend themselves, a luxury that may not be available if they are litigated into bankruptcy.

Employers Must Decide Quickly

In the author’s opinion, employers should give careful consideration to developing an arbitration policy which is scrupulously compliant with legal standards.  This would apply only to existing employees, but would have no effect on employees hired after January 1.  Arbitration policies should be finalized well before the end of this year, and distributed as far in advance of the New Year as possible.

In any event, the time to act is now.  If your arbitration policy has not been revised in 2019, please call my office without delay to discuss accomplishing this.

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Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over 37 years. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives. He has a remarkable record of success: Not one employer-client acting on his advice has been sued in over 37 years.

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well.

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. http://www.jaygputnam.com/newsletter/

 This newsletter is not intended as a substitute for legal advice and its content is provided for discussion purposes only.  Any suggestions or recommendations must be assessed by competent legal counsel to be sure the unique requirements of each workplace are properly considered.