Any arbitration that takes place in California must comply with the California Arbitration Act.
The California Arbitration Act is a piece of legislation that regulates private arbitration in the state of California. This law is intended to create and streamline the process of arbitration in the state. Certain provisions of the law have caused controversy, and there is currently a lawsuit pending to determine whether provisions involving mandatory arbitration agreements should be honored, but the Act as a whole has been instrumental in establishing the importance of arbitration in California and has made the state a safe haven for those hoping to use arbitration to resolve disputes.
This article will discuss the California Arbitration Act, particularly its ability to compel arbitration, the implications of the laws and lawsuits that have been brought to halt compulsory arbitration or keep it going, and the importance of arbitration to the practice of law in California.
What is the California Arbitration Act?
The California Arbitration Act can be found in the California Code of Civil Procedure, Title 9, §§ 1280-1294.4. This is procedural law that will govern the ways that arbitration is completed in California. It also governs when and how a dispute can or must be submitted to arbitration.
The arbitration panel may apply substantive laws from California, the federal government, or other laws that the parties agree to apply to decide the dispute at issue in the case, but the California Arbitration Act will be applied to decide the procedure of the proceedings. These rules establish the procedure for the following parts of arbitration:
- Agreeing to Arbitrate: The California Arbitration Act states that any agreement to submit a dispute, whether currently in the dispute or in the future, to arbitration is valid, enforceable, and irrevocable unless the contract to arbitrate violates contract law.
- Enforcing an Agreement: The Act allows parties to enforce an agreement to arbitrate by petition and requires that the court submits the controversy to arbitration unless a set of standards exist. This is one of the provisions of the Act that is currently in controversy.
- Appointing an Arbitrator: The Act allows the parties to decide in the agreement how an arbitrator will be appointed. If the agreement does not specify and the parties cannot agree, a court may appoint an arbitrator.
- Serving as an Arbitrator: The Act outlines the rules governing the conflicts that may disqualify an arbitrator from a dispute. It also discusses the particular requirements of the arbitrator during certain types of arbitrations such as employment disputes or commercial arbitration.
- Conducting the Proceedings: The Act outlines a standard procedure for the arbitration hearings; however, the parties have the freedom to agree on other options for various aspects of the proceedings.
- Allowing Attorneys: The Act allows any party who is a part of an arbitration under the Act to have an attorney represent them at any part of the process.
- Subpoenaing Witnesses and Documents: The Act allows the parties to subpoena witnesses and documents and requires the attendance of such witnesses and the production of such documents.
- Completing Discovery: The Act allows the parties to complete discovery, including depositions.
- Granting Awards: The Act gives the arbitrator the power to give awards and sets certain requirements for the timing and process of serving the award on the parties.
- Distributing Costs: The Act requires the parties to pay their pro-rata share of the expenses and fees of the arbitrator unless the parties have agreed otherwise. The Act also sets certain boundaries on the agreements for costs on arbitrations that will likely have a power imbalance.
- Enforcing the Award: The Act also establishes how to enforce the awards given during arbitration. It also sets up grounds for correction or vacation of the award.
The rules established in the California Arbitration Act are thorough and complete, allowing parties to fully know what the course of arbitration in California will be like.
It is also important to note that the California Arbitration Act will cover disputes over the procedure unless a provision of the Federal Arbitration Act includes a contradiction.
The Federal Arbitration Act will cover arbitrations that take place in the United States and usually exist side-by-side with the state law. However, the Federal Arbitration Act does allow for the Federal Act to supersede any state act provision that conflicts with it directly.
State acts are usually modeled to comply with the Federal Arbitration Act, but there are occasionally provisions that will be preempted. While it does not happen often, in a piece examining the California Arbitration Act, it is important to note that the Act only exists as far as it is not in conflict with the Federal Arbitration Act.
The Controversy Surrounding Compelled Arbitration:
The California Arbitration Act has a provision that allows the parties to petition a court to compel arbitration in agreement with a signed arbitration agreement unless the right to compel has been waived or there are grounds to rescind the agreement. This provision can be controversial because people often are required to sign arbitration agreements as parts of everyday contracts.
This means that in California, many of these agreements to arbitrate may be enforced against consumers and employees that have had to sign these agreements. Because choosing to arbitrate requires people to give up their right to be heard in a court, it can be said that people should not be forced to give up that right only because they had to sign a contract to use a product.
Including an arbitration agreement like this is called mandatory arbitration. It is particularly controversial in the employment law context when an employer requires a new employee to sign a contract with a broad arbitration agreement as a part of their hiring or retention paperwork because it requires people to give up the right to take an employment case to a court as a prerequisite to starting a job with the company.
These agreements may allow companies to compel arbitration if there is a dispute that arises between the parties based on the California Arbitration Act, which many people feel is not equitable to the employees.
Because of this controversy, the California Legislature signed a bill called California Assembly Bill (AB) 51, which prohibited employers from requiring employees to arbitrate claims arising under the California Fair Employment and Housing Ace and related employment statutes. AB 51 sought to stop pre-dispute mandatory arbitration agreements in employment contracts.
However, businesses came together to file a lawsuit to stop the implementation of this rule, and the courts have issued a temporary restraining order to stop the law from taking effect and eventually enjoined the law from going into place to agreements covered by the Federal Arbitration Act. The State of California has since appealed this decision to the Ninth Circuit Court of Appeals, but the case has not yet been decided, so the law still allows employers to enforce the arbitration agreements made with employees.
The Importance of Arbitration:
While there are areas where mandatory arbitration can force people into unfair situations, there are also many cases where arbitration is necessary and needed and where mandatory arbitration is necessary for the parties to resolve their disputes. Arbitration brings many benefits, which are important to acknowledge when considering using arbitration. These benefits include:
- Time: Because the arbitration process is more concentrated than litigation, the dispute is usually resolved sooner. This is because the arbitration can usually take place sooner than a trial could, especially in states like California.
- Cost: Arbitration is generally cheaper than litigation, as the arbitration costs are usually less than court costs, and the shorter time frame stops attorneys’ fees from piling up.
- Privacy: Arbitration offers confidentiality that is not available in litigation.
- Trust: Because the parties choose the arbitrator, it is more likely that they will trust the arbitrator to be just and fair.
- Finality: With the limitations on appeals for arbitration, an arbitration award is usually final.
- Flexible: The arbitration process allows the parties to set up their own rules for the proceedings and can allow the parties to ask for relief that a court may not grant.
These benefits must be weighed against the potential drawbacks of arbitration, including:
- Inequality: Occasionally, the parties will not be on an even playing field, because one party may have more money or resources, which may make negotiation unfair.
- Limits: Arbitration limits discovery and also limits objections to evidence that would otherwise be excluded.
- Unclear Standards: Arbitrators have more leeway to consider fairness and other things outside only the law when looking at the case.
While there are benefits and drawbacks to arbitration, the arbitration process does allow the parties to resolve their suits without having to go to court, saving the parties money and freeing up the court system. The California Arbitration Act provides people in California the ability to participate in the arbitration. While laws are seeking to change aspects of the law and lawsuits to keep it the same, the overall law aids the courts in efficiently resolving disputes, which is the overall purpose of dispute resolution services.
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