Dan

Welcome to Sound Business Insights. I’m Dan Watkins. This episode’s about changes in the law regarding arbitration and other employee rights. This podcast is not intended to provide legal advice.

Neil

So Dan, big Deal in arbitration in California, mandatory arbitration returns another turn in this war on arbitration here in California. What is going on?

Dan

We’re going to break some rules in this podcast.

Neil

Awesome.

Dan

We’re going to talk about politics, and how it affects you as a business owner and employer because politics big deal. Now, you know California is a Democrat controlled state.

Neil

Yes sir.

Dan

And just for business purposes, that means it is a labor union favorable party. And labor unions want their employees to have no restrictions and they want to take all the power they can away from employers. These legislatures are passing law after law after law, and the courts all the way from our courts of appeal to our Supreme Court, to the United States Supreme Court is having to constantly battle in court with our legislature.

Neil

Yes, this has been going on since 2013. They have been fighting this arbitration provision and let’s talk about it.

Dan

Want to talk about arbitration?

Neil

Yeah.

Dan

So lets, first of all, just give us some background. A long time ago when employers were evil and they had children, five years old working on the lines <laugh>, they were no rights. And so now today, 70 years later, the people who don’t like companies and employers, they act like there’s still no rights. So arbitration clauses stop employees from dragging them into court for three to five years and running up their bills and changing their, their bottom line and bringing frivolous suits. They say, you don’t want to work for me, here’s the terms of our contract. If you want to work for me and I do something wrong, you can take me to arbitration. It only takes a year. If you do something wrong, I can take you to arbitration and only takes a year. It’s quicker, it’s easier, it’s faster. And we don’t have these long litigation disputes out there.

Neil

And so in 2014, I believe they enacted and put into law AB 51, which basically put a stop to the right of an employer to mandate arbitration. Is that accurate?

Dan

That’s right. Oh no, that’s not Well, that’s right. But it’s part of the story. It’s the beginning of the story. They started out with that and then the Supreme Court came down and said, oh no, no, you can’t do that. It’s against the Federal Arbitration Act.

Neil

That’s right.

Dan

And so you can’t do that. So then they said, you know what? We won’t we’ll pass a new law that says you can put them in your agreements, but if you do it’s a crime and we’ll put you in jail for it. <laugh>. And they thought it would pass muster and it did. A couple courts said, yeah, it looks good to me.

Dan

And then the Supreme Court said, no, no, the United States Supreme Court has spoken and the Supreme Court of the state of California did something I’ve never really seen. They said the entire prop 51 is void. Now whether that’s true or not, we’re going to find out. Right? They’re going to have other cases that go to different courts of appeals and different justices will be ruling in favor of the employee. Again, uh, and I’m being sarcastic because I am biased in favor of people who own businesses. Of course. That’s my bread and butter and that’s how I see the world. I represent companies, we represent businesses, and we want to make sure we’re on top of this when it comes to this.

Neil

And we represent employers,

Dan

Right? People who hire people and they need to know what the law is. And it’s changing every darn month.

Neil

So the decision is Chamber of Commerce versus Bonta. Can you tell me in a nutshell, Dan, what are the elements of the decision and how does that change the game?

Dan

The decision came about because there was an arbitration provision. Well, the statute was drafted and there was an appeal of the statute and then it went to the court of appeals and, and then it went to the Supreme Court. And then they said, yeah, you can’t have arbitration provisions. But then before it could go back and be published as an opinion <laugh>, the United States Supreme Court ruled. And then our Supreme Court came back and said, no, no, we’re going to change our tune and we’re going to rule that the whole statute’s wrong. Now let’s look at something inside the statute.

Neil

Good.

Dan

The statute talks about arbitration and it says if you put an arbitration provision in a employee’s agreement and they sign it, are you even presented to them, Or you even drafted in there? You committed a misdemeanor, you can go to jail. So you, you got penalty of prison hanging over someone just trying to hire somebody to drive a truck.

Neil

Right?

Dan

So, so it got scary there. But they had other things in there. It said if you violate any rights in the way you drafted your contract, it could be a crime. And so while that wasn’t there in the opinions, it was all about the arbitration act, the opinion from the state Supreme Court seems to say that all of it is gone when it comes to Prop 51. It’s going to be back before the legislature and they are not going to stop As long as we still have the same people up there, they’re not going to stop trying to give employees more rights to sue employers in California.

Neil

So based on where we stand today, five years ago, several years ago, we had to go back and tell employers, you need to draft contracts in this way if you’re going to have a contract, what about this opinion changes what our employers need to know and is it time to review and go back with them and take a look at arbitration agreements and if they’re the appropriate thing for their application,

Dan

Normally I’d say why mess with an unsettled area of law, right?

Neil

Yes.

Dan

I mean, why draft in agreement when you know the legislature’s going to come back and say, oh, we got a new one for you. However, arbitration clauses have a one weapon that is great for us employers, they kill class actions.

Neil

Plaintiff suits,

Dan

Right. You sign an arbitration clause, all of a sudden all these greedy class action lawyers who want to say You misprinted the pay stubs and we want to sue you in a class action. Sorry, you’ve got to go to arbitration. And arbitrations are usually just one onesies, <laugh>. So you can sue your employer in arbitration for the $500 you didn’t get that year or <laugh>. You can just make a claim and say, gimme my money because the pay stubs are off. Or you can not sign the arbitration clause and don’t get the job.

Neil

Right.

Dan

So right now, yes, you want that arbitration provision in your employment contracts. Right now that’s the law. That’s the, the law of the United States Supreme Court.

Neil

Yes.

Dan

So you can rely on that for a while and likely our US Supreme Court’s going to keep kicking it down the road. So they can’t do it unless something happens. And that always happens.

Neil

Yes. And then we’ll advise you.

Dan

Yes. So this case, even though it’s going to be unsettled for a long time, now that you can get your arbitrations and your agreements, we’re putting them in all the time. And you can see us for that. Or you can see us for the PAGA lawsuit, <laugh>, which stands for, uh, class action Employment case. Private

Neil

Private Attorney’s General Act

Dan

Right.

Neil

Plaintiffs coming for your money.

Dan

We can put those in now and we’ll represent you at the arbitration.

Neil

Yeah. So Dan, if there isn’t an employment contract in the relationship, is it still wise to have an arbitration agreement?

Dan

Well, you need an employment contract to have an arbitration agreement and you should have one. You probably do and don’t realize it.

Neil

Hmm.

Dan

Custom in practice, that’s a term the lawyers use for, you don’t have a formal contract, but you had these forms, you gave the employee.

Neil

Yes.

Dan

And you had this employment manual and you had a time card policy, you had procedures,

Neil

policies and procedures.

Dan

You have a custom and practice for the way you do business. So you have an agreement and it’s evidenced by writings. It’s just you haven’t gotten around to, having to spend very little money to have a formal employment contract that does two things for you. Two key things in California, number one, identifies the parameters of the experience between you two. It identifies your rights arbitration and others and their rights. And if they agree to it and you agree to it, you got a deal. But we also use it to comply with your requirement to give them notice of a lot of the laws and things that you’re supposed to do as an employer. So you’re killing two birds of one stone. You got your employment contract that protects you, and you also have an employment contract that includes a bunch of things in there that they sign that they know about. They can’t sue you over because you got their signature on the dotted line saying they acknowledge that they’ve been informed.

Neil

So the short answer right now would be it’s time to have us take a look at your contracts.

Dan

Yes. If we’re not going to look at it, somebody should. It’s a new law. I think it’s what, two weeks old?

Neil

Yes.

Dan

It’s when you don’t have to go to jail for this anymore <laugh>. And so no one’s coming to your door to knock on it. Go get your contracts amended and protect yourself from the incredibly expensive class acts and lawsuits and a whole bunch of others.

Neil

So Dan, we just kind of mentioned PAGA in passing. How do you think this is going to impact PAGA and the risks that our employers face?

Dan

Well, there’s a technical legal way it impacts. They have to have it heard in a different tribunal, a different place. It costs more money. You’ve got to pay arbitration fees. The employment agreement can have limitations on how you bring your PAGA case or the issues involved that normally would go to a court. But there’s another part of it. The other part is there are hundreds of law firms out there that advertise and advertise to all your employees. Come see me if you’re thinking about leaving or you’re just mad and we’ll put five or $10,000 in your pocket. And they are green bribing these people into making up claims against your company. And so you are going to have one of your employees go to one of these wolves and review the facts. And if they find out they signed an arbitration clause in their employment agreement based on this new law, that wolf is going to go to the next victim. <laugh> who doesn’t have an arbitration clause.

Neil

That’s right.

Dan

All the incentives are gone and all those wolves have to eat. And you can be one of the prey out there with no clause. Or you can be, you know, one who they don’t want to go.

Neil

Right.

Dan

And I guess they don’t knock, they’re not going to knock on your door. As you get the big brick house <laugh>, you’re not going to get eaten by those rotten plaintiffs wolves who are going after all your employees and going after you. That’s why I feel so strongly about getting your arbitration clauses now, while it’s illegal and while it’s a deterrent to a lot of the lawsuits we see out there,

Neil

Dan, one of the central focuses of our firm is to protect employers and to represent them in disputes. And part of that is to know the game and to know it well. And California is a complex land for employers and the game is really full of rules and they don’t make sense to a lot of us.

Dan

That’s correct. California’s been dealing with this since the sixties. <laugh> literally, we’ve been passing legislation over and over again. And I’m not saying it’s, it’s a terrible thing. I’m just saying if you own a company, you need to know constantly. Because let’s face it, when we own a company, we try to calculate what our labor costs are going to be. Our material costs and our overhead costs and we try to make a profit. The labor costs keep changing every year that we get these new laws in and we have to constantly factor it in. And anything we can do to lower those labor risks we should do makes us more competitive. Makes us more profitable.

Neil

Absolutely. So this is a pleasant reminder of invitation. If you haven’t listened to our any other episodes of our podcast in episode 26, we covered Wage Now or employer updates for 2023. And in episode 23 we talked about a lot of these complex issues facing employers and how to manage employees in San Diego. And we’ve also covered in episode 22, some of the most common questions that we get from employers. So there’s a real rich resource here for you as an employer and we invite you to make it available to yourself. And if you have any questions as an employer, a phone call doesn’t cost you anything. And Dan, what’s it like when they make that call?

Dan

Well, like I said, we listen and then we’re old lawyers. We know the answer to the question right away. So we don’t have to delay your efforts to find the truth

Neil

And it doesn’t cost them anything to get to the start of the conversation.

Dan

And that’s correct.

Neil

Thank you, Dan.

Dan

Thank you. You can learn more about the Watkins firm at https://watkinsfirm.com or call our office at (858) 535-1511.