The Federal Arbitration Act (FAA) protects the rights of parties, including employers, to engage in arbitration rather than court-adjudicated lawsuits to settle disputes.  In contrast, the California legislature has long attempted to nullify employers’ ability to settle disputes with employees via arbitration.
 
Governors have sometimes vetoed California’s anti-arbitration legislation. When governors have approved such measures, courts have ruled that they violate the FAA.
 
In the latest anti-arbitration measure, the Governor has approved SB 365, changing the general rule that the trial court may not address any issues that are on appeal.  Instead, under the new law, appeals of a court order denying or dismissing a motion (request) to compel (require) arbitration will not automatically stop the trial court from proceeding on the issues.
 
Proceeding in the trial court while an issue is on appeal nullifies the purpose of an arbitration agreement – which both parties have signed – to contain costs, speed up the process, and have a more private adjudication of the issues.  And if the appeal is granted, everything the trial court has done in the interim may be void if the case is sent to an arbitrator to address those same issues.
 
Does this latest California legislation violate the FAA?  Very possibly it does. If so, when a court overturns it, the California legislature will undoubtedly pull out its cauldron and whip up a new anti-arbitration incantation.

Take-Aways: 

Always consult with counsel concerning legally appropriate arbitration agreements and their enforcement.  And watch this blog for ensuing developments on this new anti-arbitration measure.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Federal Court Approves Mandatory Workplace Arbitration: Out-of-Court Contracts (February 24, 2023)
• Cautionary Tale Episode 53: Poetic Justice Smack Down: Reconsidering Arbitration Agreements  (April 6, 2022)
• The Right To Fight: Battle Continues Over Employer-Required Arbitration Agreements (September 24, 2021)
• What’s New In 2020: California Prohibits Mandatory Employee Arbitration Agreements (December 18, 2019)

Helena Kobrin
October 20, 2023