Governor Jerry Brown signed two pieces of legislation AB 802 and AB 2617 that may make the arbitration of employment claims in California undesirable after January 1, 2015. The new law, applicable to arbitrations occurring on or after January 1, 2015, all but eliminates confidentiality in arbitration proceedings, and even allows attorneys representing employees interests to “advertise” their claims against employers.

AB 802:

Private arbitration companies, such as the American Arbitration Association, JAMS, and others, previously were required to collect and make available certain information “upon request.” AB 802 amends section 1281.96 of the Code of Civil Procedure, to require private arbitration companies to collect additional information related to consumer arbitration cases.

After January 1, 2015, AB 802 requires arbitration companies to disclose whether an employer demanded the arbitration pursuant to a pre-dispute arbitration clause and whether the clause designated that particular private arbitration company. Accordingly, AB 802 will force arbitrators to divulge any past relationships with employers seeking to enforce an arbitration agreement. This requirement could help employees seeking to avoid arbitration to argue that a private arbitration company designated by the employer is biased based on an ongoing business relationship. Further, although section 1281.96 previously required arbitration companies to identify the non-consumer party if it is a corporation or business, AB 802 will require arbitration companies to identify if the business entity is the initiating party or the responding party, as well.

Besides identifying employers who initiate the arbitration process, AB 802 also provides plaintiff attorneys with free advertising. Arbitration companies will be required to provide the employee’s attorney’s name and law firm. This provision allows employees to select a lawyer with prior arbitration experience against the employer.

The law requires disclosure of the amount of the employee’s claim, whether equitable relief was requested or awarded, the amount of any monetary award, including attorneys’ fees, and any other relief granted. Accordingly, employees subject to an arbitration agreement will be able to shop for successful attorneys by reviewing private arbitration companies’ websites for the number and size of those attorneys’ arbitration awards.

So, Plaintiff attorneys will be able to post links on their own websites to a private arbitration company’s website so they can show potential prospective plaintiffs their arbitration awards, including the amount of any attorneys’ fees awarded for claims for violations of the Fair Employment and Housing Act, and other laws.

AB 802 will also allow employees to shop for particular arbitrators if the arbitration agreement allows it. Section 1281.96 presently requires that arbitration companies reveal (1) the name of the arbitrator for each arbitration, (2) his or her total fee for the case, and (3) the percentage of the arbitration fee allocated to each party. However, AB 802 will also require arbitrators to disclose whether a waiver of any fees was granted, and, if so, the amount of the waiver.

AB 802 will further require arbitration companies to make the information collected pursuant to section 1281.96 available on the Internet, and in a format that allows the public to search and sort the information using readily available software. The information also must be directly accessible from a conspicuously displayed link on the arbitration company’s website. The link must include the identifying description: “consumer case information.”

In all, AB 802 requires arbitration service companies to disclose details about individual arbitration proceedings. Most courts do not make information available to the public in this user-friendly format. In fact, courts now charge for access to their electronic docket information. And consumers seeking information about court proceedings will not typically find the same type of information that AB 802 requires arbitrators to provide.

AB 2617:

AB 2617 is the California legislature’s latest effort to ban arbitration of certain types of claims. AB 2617 appears to prohibit pre-dispute agreements between employers and independent contractors that include waivers of claims under the Ralph and Bane Civil Rights Acts, Civil Code sections 51.7 and 52.1. These are civil rights laws prohibiting hate crimes and violence based on protected criteria such as age, ancestry, color, disability, sex, etc.

AB 2617 prohibits a person from requiring a waiver or release of sections 51.7 and 52.1 protections as a condition of entering into a contract for provision of goods and services. Accordingly, any waiver of the right to sue under these civil rights statutes must be knowing and voluntary and cannot be made as a condition of entering into the contract or as a condition of providing or receiving goods and services. The new law expressly applies to arbitration agreements that are entered into, modified or extended after January 1, 2015.

The Ralph and Bane Acts are separate from the California Fair Employment and Housing Act, which prohibits harassment and discrimination that include what the Ralph and Bane Act also proscribe. However, in at least two cases, the courts of appeal have held that the Ralph and Bane Acts may apply to employment claims.

AB 2617 does not appear to apply to employees. However, there is some ambiguity because the law is written ambiguously. The law applies to a contract for goods and services, such as an independent contractor agreement. However, it would not be a far stretch for an employee to argue that a letter offering employment constitutes a contract for services, placing the employee under AB 2617’s protections. Given that the Ralph and Bane Acts in some cases apply to employment claims, it may be that AB 2617 applies as well.

The U.S. Supreme Court repeatedly has held that the Federal Arbitration Act preempts state legislatures’ attempts to carve-out laws from mandatory arbitration, as AB 2617 attempts to do. It is unclear how the legislature and Governor believe this law will remain on the books. However, that will be up to the courts after years of litigation.

Practical Tips:

Employers should carefully consider the pros and cons of mandatory arbitration after January 1, 2015. One of the attractive aspects of arbitration is confidentiality, because arbitration proceedings are conducted in private rather than open court. AB 802 does not ban or limit arbitration in any way. But by requiring arbitration services to post sensitive information about arbitration proceedings, even the amount of an award, AB 802 undeniably makes arbitration less attractive.

Employers may have alternatives, such as selecting arbitrators in a manner that is not covered by the law. However, plaintiff lawyers sometimes attack the arbitrator selection method as unfair. Therefore, employers will have to carefully draft any attempts to side-step AB 802.

As for AB 2617, the courts likely will hold that the Federal Arbitration Act preempts the law. However, some employers are not covered by the federal law. Additionally, some courts scrutinize whether the employer’s lawyers have adequately proved FAA coverage in their petitions to compel arbitration.

The bottom line is that, despite many legal developments over the past several years, it the desirability of arbitration in California remains an open question. It is critical to consult with an experienced employment lawyer before implementing arbitration at the workplace.