Over the past few years, this blog has followed the California Legislature’s concerted efforts to vitiate employment arbitrations in the state.  Senate Bill 365 is the next in line.  This bill amends Code of Civil Procedure section 1294(a) to state that, while an aggrieved party may appeal from an order dismissing or denying a petition to compel arbitration, “the perfecting of such an appeal shall not automatically stay any proceedings in the trial court during the pendency of the appeal.” (Emphasis added). 

            Although a small change to a short statute, the effects may be devastating to employers.  Before the amendment, employers who chose to appeal the denial of the petition to compel arbitration could wait for a final determination by the Court of Appeals on whether the petition to compel arbitration should have been granted before anything else in the civil proceeding could move forward.  Beginning on January 1, 2024, when this new law takes effect, employers may be required to continue defending claims in civil court that are arguably subject to arbitration, while the appeal from the trial court’s order denying arbitration is pending.  If the employer is then ultimately successful in compelling arbitration, any efforts expended in the civil action may need to be duplicated by the parties in the arbitration.  To avoid such a costly result, it will be incumbent on every employer who appeals a denial of a petition to compel arbitration to specifically move the trial court for an order to stay the civil proceedings pending the appeal. 

            Like other new laws that seek to limit employment arbitrations in this state, SB 365 seems to be at-odds with recent federal decisions.  In June 2023, the Supreme Court of the United States ruled that federal district courts must stay proceedings during an appeal over the question of whether the underlying claims are subject to arbitration.  Given the Supreme Court’s pro-arbitration ruling, business groups may rely on such precedent to challenge SB 365 in the future.  Until a challenge is brought and a court rules on the amendment’s enforceability, however, employers will need to add this new consideration to the already onerous weight of deciding whether to compel employee claims to arbitration.

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