Trial Attorneys Benefit from Agreement Ban

The California Chamber of Commerce and a large coalition of employer groups and local chambers of commerce are opposing a job killer bill that bans settlement and arbitration agreements.

Today the Senate Judiciary Committee will consider AB 3080 (Gonzalez Fletcher; D-San Diego), which significantly expands employment litigation and increases costs for employers and employees by banning settlement agreements for labor and employment claims as well as arbitration agreements made as a condition of employment, which is likely preempted under the Federal Arbitration Act (FAA) and will only delay the resolution of claims. Banning such agreements benefits the trial attorneys, not the employer or employee.

Bans Arbitration

AB 3080 prohibits arbitration agreements made as a condition of employment for any claims arising under the Labor Code or Fair Employment and Housing Act (FEHA) and/or including class action waivers.

Arbitration is a less formal, less costly and less time-consuming forum in which to resolve a dispute. The cost savings is not in the compensation paid to the employees; it is in the fees paid to attorneys.

Although studies demonstrate that employees generally win the same percentage of cases in arbitration, if not more, the trial attorneys may not recover as much in fees. Thus, the ultimate beneficiaries of an arbitration and class action waiver ban are trial attorneys, not employers or employees.

Hurts Low-Wage Employees

Banning arbitration leaves litigation as the only option for employees to resolve many labor and employment claims. This ultimately results in low-wage employees being denied access to justice.

The California Democratic Party’s Platform on Civil Justice states that budget cuts to the judiciary have led to extended waits for civil lawsuits and legal issues that touch everyday lives, with the delays meaning only the wealthy can afford to use the civil justice system.

Several studies also support the idea that access to civil courts is not a realistic option for low-wage employees.

With the civil justice system being accessible mainly to the wealthy, many low-wage workers are left with no alternative if arbitration is not available.

Preempted by Federal Law

The scope of the FAA is broad and mandates the enforcement of any written arbitration agreement regarding the resolution of any dispute arising out of a transaction involving commerce.

The only exception to the mandate is if the contract is unenforceable due to contractual defenses that exist and are applicable to any contract.

The U.S. Supreme Court and recent California decisions point to the strength of the FAA.

AB 3080 is not applicable to all contracts and is not a general contractual defense. It unfairly targets and discriminates against arbitration clauses in employment contracts, leaving all other terms of employment conditional and mandatory. Accordingly, it is preempted under the FAA.

Bans Settlement Agreements

AB 3080 prohibits an employer from requiring an applicant or employee to waive any right, forum or procedure under FEHA or the Labor Code for receipt of any “employment-related benefit.” This language precludes any settlement agreement for any claims arising under FEHA or the Labor Code.

In an employment context, the value provided in a settlement agreement generally is compensation in some form of wage replacement, be it back pay, loss of wages, or front pay. This compensation would likely be considered an “employment-related benefit” and therefore prohibited by AB 3080.

Benefits Trial Attorneys

The issue of preemption will unquestionably be litigated if AB 3080 becomes law. Approximately 5–10 years will pass for a case under the FAA to reach the Supreme Court, meaning the employee who has suffered the alleged harm will wait that long to receive any final decision on his/her case.

Extended litigation also will force employers to defend unnecessary litigation and pay significant costs and fees.

The uncertainty and litigation will benefit only trial attorneys, not the employer or employee.

Action Needed

The CalChamber is encouraging members to contact their senators and Senate Judiciary members to urge them to oppose AB 3080.

Let legislators know that precluding the informal resolution of civil claims would overwhelm California’s judiciary system by forcing all claims to be tried by a jury or judge, creating significant delays that would harm individuals who have suffered a wrong.

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