In a Major Victory for Employers, Governor Brown Has Vetoed the Latest Assault on Arbitration Policies. What Does This Mean for Employers?

On September 30, 2018, Governor Brown vetoed AB 3080. This statute would have gutted the right of employers to require the arbitration of workplace disputes. This would have eliminated one of the most important protections remaining to employers, by forcing them to incur the often-insurmountable financial burden of defending workplace disputes through a jury trial in California’s superior court system.

However, many employers fail to take advantage of their right to require arbitration of workplace disputes, because they still have not distributed a legally-enforceable arbitration policy to all employees. For many small businesses, in particular, this could prove to be a solvency-threatening oversight.

How Do Employers Get the Benefit of Arbitration?

Invoking this important form of legal protection requires the preparation and proper distribution of a carefully-drafted, written arbitration policy to all employees as soon as possible. This is often done in conjunction with the distribution of an employee handbook. Waiting until a dispute arises is too late. A legally enforceable arbitration policy must be in place and distributed at the time a dispute arises. The policy must include several indispensable elements that have been identified by the courts. Other rules govern how such policies must be distributed to employees.

For example, the courts have held that an enforceable arbitration policy, typically consisting of between five and fifteen pages, must be distributed separately to employees. The courts have held that “burying” the policy in an employee handbook or among other documents is akin to playing a shell game that could result in employees unwittingly consenting to a policy they had not read. One recent court ruling held that arbitration policies making reference to statutes, which is common, require employers to include copies of the referenced statutes with the policy when it is distributed. These are two examples of the many technical, legal requirements which must be complied with.

Why Arbitration?

It is the author’s considered opinion that legally-enforceable arbitration policies are perhaps the single most important protection available to employers. Such policies enable employers to avoid the often-futile exercise of convincing a jury, in the event of a lawsuit, that the plaintiff-employee’s rights were not violated.

Why is it futile? The answer is simple: juries are typically comprised exclusively of employees, to the exclusion of all business-owners and managers. For this reason, jurors are naturally sympathetic toward the plaintiff-employee. This is not merely a theory. Studies demonstrate that juries find for plaintiffs in employment disputes far more frequently than in other kinds of cases. Moreover, the verdicts they return are often much larger in the plaintiff’s favor, further demonstrating a pro-employee bias.

Believe it or not, there may be an even more important reason for employers to require the arbitration of workplace disputes. Litigating a labor dispute through a jury verdict in California frequently costs the better part of a million dollars, if not more, in defense costs alone. This does not include the cost of appeals.

Consequently, many employers are unable to afford even this limited form of “justice.” They are instead forced to settle even defensible claims on highly-disadvantageous terms. By contrast, the arbitration of workplace disputes can save as much as 90 percent of the defense costs employers would otherwise incur.

For these reasons, it is no exaggeration to say: The distribution of a legally-enforceable arbitration policy may be the only real justice available to many small employers.
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Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over three decades. His practice is devoted to preventing lawsuits against his employer-clients, without sacrificing workplace authority or management prerogatives.

While no one can guarantee a future free of lawsuits, Putnam has compiled a remarkable record of success: Not one employer-client has been sued with his comprehensive system of precautions in place.

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/