(May 31, 2023) A California Chamber of Commerce job killer bill that undermines arbitration could cause California to lose up to 18,000 jobs and up to $129 million in state taxes, according to a recent economic analysis.

The bill, SB 365 (Wiener; D-San Francisco), discriminates against the use of arbitration agreements by requiring trial courts to continue trial proceedings during any appeal regarding the denial of a motion to compel, undermining arbitration and divesting courts of their inherent right to stay proceedings.

Economic and Affordability Impacts

An economic analysis of SB 365, conducted by Encina Advisors, LLC on behalf of the California Foundation for Commerce and Education, estimates that resolution delays caused by the bill would lead to 4,600 to 18,300 jobs lost and $32.3 million to $129.2 million in lost state taxes.

The analysis assumes a delay of one year or more in resolving employment disputes that normally would be resolved through arbitration and estimates the average value of an employment dispute to be $306,856.

This estimated delay harms employees because they would not be able to access their restitution until the case is settled if they prevail.

Similarly, even if the employer prevails, the employer is still harmed because the monetary claim was tied up until resolution. This means that for a year or more, the company was unable to invest the money into company operations or in salaries and wages for others.

Attack on Arbitration Agreements

In a letter recently sent to legislators, the CalChamber pointed out that SB 365’s true motive is to attempt to eliminate the use of arbitration agreements altogether.

Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration, for all matters related to the appeal. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions. Trial courts, however, have the inherent power to grant a discretionary stay if it serves the interests of justice and judicial efficiency, the CalChamber explained. SB 365 would divest trial courts of this power and eliminate a trial court’s inherent right to stay its own proceedings.

Civil Litigation Benefits Attorneys Not Workers

The motive behind SB 365 and its likely result is to increase civil litigation, the CalChamber said in its letter.

The stakeholder that generally profits from civil litigation is the attorney, not the consumer or worker. For example, consumers and employees typically receive higher awards and have their claims resolved more quickly in arbitration than litigation. The same holds true when one looks at data from California’s own agencies regarding outcomes in litigation versus agency enforcement.

In the case of the Private Attorneys General Act (PAGA), the current average payment that a worker receives from a PAGA case filed in court is $1,300, compared to $5,700 for cases adjudicated by the state’s enforcement agency. Attorneys on average recover a minimum of 33% of the workers’ total recovery, or $372,000 on average in litigation. In addition to receiving lower average recoveries in PAGA cases, workers also wait almost twice as long for their owed wages.

By requiring litigation to continue in every case during the appeal of a denial of a motion to compel, SB 365 undercuts the benefits of arbitration in providing a speedier, less costly forum in which to resolve disputes, the CalChamber stressed.