Given California’s past resistance to mandatory arbitration agreements with class action waivers, it should come as no surprise that the state has now enacted two laws primarily directed at arbitration.

On Sept. 25, Governor Jerry Brown signed a bill (Senate Bill 1241) that amended the state’s Labor Code to prohibit an employer from requiring as a condition of employment, that an employee “who primarily resides and works in California” to “adjudicate” outside of California a claim arising in that state.

And while “adjudicate” covers both litigation and arbitration, the thrust of the provision appears to be the restriction of arbitration agreements.  Moreover, the law prevents an employer from depriving an employee “of the substantive protection of California law” for a matter arising in California.  In other words, a company cannot use what are commonly referred to as choice of law provisions to make the law of other (perhaps less employer-friendly) states applicable to California workers.

The law exempts any agreement made by an employee individually represented by an attorney that designates “either the venue or forum” in which an employment claim will be resolved.

Violations of the law, which applies to contracts entered into, modified or extended after Jan. 1, 2017, will entitle the employee to injunctive relief and other remedies, including reasonable attorneys’ fees.

The other new California law, also signed on Sept. 25 (Senate Bill 1007) applies only to arbitrations and gives a party to an arbitration the right to have a certified court reporter transcribe “any deposition, proceeding or hearing” and provides that the resulting transcript will be the official record of that event. The law also establishes the time frame within which a party must request that the proceeding be transcribed, and provides that the party seeking the transcript (except for indigent consumers) must pay for it.

Finally, should the arbitrator refuse to permit the shorthand reporter to transcribe any of the covered events, the party requesting the transcription may seek a court order to compel the arbitrator to accede to the request. Charitably, the new law does not add to the grounds for vacating or correcting an award under California law.

The author of the legislation, Senator Bob Wieckowski, maintained that while some arbitral sponsors do permit the use of court reporters, the practice was not uniform. And he felt the right to have a record of the proceeding was “a critical factor.”

Regardless of motivation, these new laws clearly aim to limit arbitration agreements in California and, in the case of the provision pertaining to court reporters, to potentially add an overlay of formality to the arbitral proceeding which by its very nature is intended to be relatively informal, and cost-effective. While it is not unusual to have a court reporter at arbitral hearings and at depositions, it is not clear how broadly this statute will be construed.

It is also unclear how courts in California might apply these provisions to arbitration agreements or proceedings in interstate commerce covered by the Federal Arbitration Act (“FAA”). For example, in Rodriquez v. American Technologies Inc., 136 Cal. App. 4th 1110, 1122 (Cal. 4th Dist. 2006), the appellate court found that the parties’ selection of the FAA trumped California procedural law on staying judicial proceedings when arbitration is compelled.  At this point it is difficult to predict what challenges might be brought to these new provisions based on federal and state law or what actual impact they may have on most arbitration agreements.

BOTTOM LINE:

California has erected another potential roadblock to the development and enforcement of arbitration agreements.  Only time will tell whether court challenges will be brought under the FAA or on other grounds.