September 6, 2002

The Honorable Gray Davis
Governor, State of California
State Capitol
Sacramento, CA 95814

RE: SB 1538 (Burton)

Dear Governor Davis:

I am writing to urge that you veto Senate Bill 1538 (Burton). The Civil Justice Association of California remains opposed to this proposal.

This bill, like its predecessors, attempts to prohibit an agreement to arbitrate future disputes from being included in any employment agreement.

Senate Bill 1538 has two components. The first component prohibits an employer from requiring an employee to waive their rights to file a complaint with the Department of Fair Employment and Housing. This provision would put California in line with the United States Supreme Court's decision in EEOC v. Waffle House, Inc.,122 S.Ct. 754, (2002). CJAC does not oppose this provision of the bill.

The second component of SB 1538 would attempt to prohibit an employer from requiring an employee to agree to arbitrate disputes which may arise during the course of employment for alleged violations of the Fair Employment and Housing Act (FEHA). This prohibition is contrary to the provisions of the Federal Arbitration Act (FAA) and well established public policy encouraging arbitration. Arbitration agreements are becoming increasingly favored and have worked well in many areas. The cost and time savings of arbitration offer considerable benefits to both parties.

We urge you to continue to focus on genuinely improving arbitration rather than frustrating or eliminating the ability to use it. State and federal courts are continually interpreting the law to improve the process. Legislative proposals have been sent to you to improve arbitration without destroying the ability to use it. The Judicial Council is working to improve arbitration under last year's SB 475 (Escutia) by promulgating ethical rules for non-judicial arbitrators. Arbitration is continually being improved. Employees, professionals, and businesses should have the opportunity to benefit from the changes, instead of being deprived of a right to contract to arbitrate future disputes.

SB 1538 Violates the Federal Arbitration Act. The Federal Arbitration Act (FAA) provides that agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 USC §2 Attempts to qualify or otherwise impair the enforceability of arbitration clauses have consistently been held preempted by the FAA. The United States Supreme Court invalidated a Montana statute that attempted to render an arbitration clause unenforceable if it did not meet certain notice requirements. The court held that the statute was preempted by the FAA. Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681 (1996). The United States Supreme Court reaffirmed this position in Southland Corp. v. Keating, 465 U.S. 1 (1984). The Southland Court decided the issue proposed in this bill and held,

"In enacting §2 of the Federal Arbitration Act (9 USCS 2), ... Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." See id at 16.

The Supremacy Clause of the U.S. Constitution provides that the Federal law is supreme, and conflicting state law is void. Senate Bill 1538 attempts to conflict with explicit Federal law in which Congress declared explicit jurisdiction in the subject of arbitration.

The United States Supreme Court reaffirmed this position for a third time last year in Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001). This case specifically addressed a California resident bringing an action under California's FEHA statute and the Court concluded the FAA allows arbitration of such claims; the exact situation this bill contemplates reversing. The Circuit City Court's ruling declares that Congress, through passage of the Federal Arbitration Act and interpreted by the United States Supreme Court in three different cases (Southland Corp. v. Keating, Allied-Bruce Terminix Cos. v. Dobson, and Circuit City Stores, Inc., v. Adams), declared a policy favoring the use arbitration agreements and that states cannot invalidate arbitration agreements.

Recent 9th Circuit Decision Overturns Inconsistent Holding

On September 3, 2002, the Ninth Circuit Court of Appeals in EEOC v. Luce, Forward, Hamilton, & Scripps, 2002 DJDAR 10089, overturned its prior holding in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (1998). The Court declared that workers may be compelled to forgo their right to sue and submit race, age, or sex discrimination claims to mandatory arbitration pursuant to the United States Supreme Court's holding in Circuit City v. Adams. Ninth Circuit Justice Trott quoting Circuit City stated: "By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." This decision removes any inconsistent opinion throughout the California court system that arbitration is an acceptable means of resolving discrimination claims and that states do not have the power to require a judicial forum to resolve these claims.

The California Supreme Court Declared Arbitration of FEHA Claims is Appropriate

The California Supreme Court approved the use of pre-dispute arbitration agreements to resolve complaints. In August 2000, the California Supreme Court issued a unanimous decision authored by the arguably most liberal member of the Court, the late Justice Stanley Mosk, declaring Fair Employment and Housing Claims are arbitrable. The Court issued its decision in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, (2000). In that case the Court considered whether employees may not be compelled to arbitrate anti-discrimination claims brought under the Fair Employment and Housing Act. The Court stated:

"that such claims are in fact arbitrable if the arbitration permits an employee to vindicate his or her statutory rights. As explained, in order for such vindication to occur, the arbitration must meet certain minimum requirements, including neutrality of the arbitrator, the provision of adequate discovery, a written decision that will permit a limited form of judicial review, and limitations on the costs of arbitration."

Prohibiting arbitration agreements outright runs contrary to this policy.

Arbitration is a fair, speedy, and efficient method of resolving employment disputes.

This bill begins from the faulty premise that an employee is somehow disadvantaged by having signed an agreement to arbitrate disputes. In truth, arbitration brings cases to resolution faster and at less overall expense to both parties than traditional litigation. Of greatest benefit to the employee is the fact that arbitrators are better situated than judges or juries to do equity. In some instances, the arbitrator will award partial damages to a claimant despite the fact that the black letter law would result in a defense verdict.

No Advantage to "Institutional" Users of Arbitration

The plaintiffs' bar's claim of bias among arbitrators in favor of the institutional user is based upon scant evidence. (See Indiana University paper "Employment Arbitration: Differences between Repeat Player and Non-repeat Player Outcomes," Bingham, Lisa B. 1997) The one study cited examines a paltry 270 arbitrations and pares these down to a statistically unsupportable 35 cases involving "repeat players." Forgetting for a moment the anemic sample size on which the study's findings are based, the correlation suggested is more likely the result of repeat users knowing which cases to take to arbitration and which to settle than it is the product of arbitrator bias.

Furthermore, a news article disputes any information advantage which defendant "repeat players" may have. It reports that "a Beverly Hills plaintiffs' lawyer gathers detailed information on California arbitrators and mediators. Then he shares it with other plaintiffs' attorneys." The article discusses the plaintiffs' lawyer's database of arbitrators, which includes information from how they evaluate damages to what kind of activities they enjoy. The article states that "when it comes to keeping score of neutrals, the plaintiffs' bar appears to be ahead of its counterparts." Kiesel's List, San Francisco Daily Journal, Law and Business Section, January 1999.

Alternative dispute resolution methods such as arbitration should be encouraged, especially as court dockets continue to expand. The filing of acrimonious, costly civil lawsuits should be discouraged when arbitration exists as a proven, cost-effective alternative. Moreover, there is no reason to intrude on the right of parties to contract or to discourage arbitration in employer-employee disputes.

For these reasons, CJAC urges you to veto SB 1538.

Sincerely,

John H. Sullivan, Esq.
President