When Gov, Gavin Newsom signed Senate Bill 365 last week, he opened a new chapter in a decades-long political and legal war over California laws governing relations between employers and their workers.

Briefly, SB 365 declares that when an employer loses a civil suit seeking to compel arbitration in a labor law dispute with a worker, the employer is not automatically allowed to freeze proceedings in the underlying issue by filing an appeal.

Thus, the measure weakens the long-standing ability of employers to require arbitration of such disputes, which flows from a pro-arbitration federal law, and is a significant victory for unions and lawyers who specialize in pursuing employment cases for workers.

Ironically, however, as the bill was winding its way through the Legislature this year, the U.S. Supreme Court declared that appeals of disputes over the applicability of arbitration in federal courts should freeze (stay, in legal jargon) the underlying cases.

In June, a legislative staff analysis of SB 365 warned legislators that the then-pending Supreme Court case “presents the potential for a more direct conflict with this bill.” The Supreme Court made its ruling on June 23, when the bill was awaiting a vote in the Assembly, but its sponsors proceeded anyway, finally sending it to Newsom on September 13.

Strongly Opposed by Business Groups

Business groups strongly opposed SB 365 and the state Chamber of Commerce placed it on its “job killer” list. But it was a high priority measure for unions and one of only a few such bills to be passed and signed this year.

Given the Supreme Court’s pro-arbitration ruling, it’s likely that business groups will challenge SB 365 in court, thus joining many other legal and political jousts over California labor laws.

A major front in the running conflict was the iconic 2018 state Supreme Court decision that millions of workers who had been classified as independent contractors were entitled to be treated as payroll employees.

That ruling sparked legislation (Assembly Bill 5) that specified, category by category, who would be affected. It also spurred a successful effort by rideshare companies such as Uber and Lyft in 2020 to persuade voters to exempt their contract drivers.

Another front is a unique-to-California, 20-year-old law called the Private Attorney General Act, or PAGA, which empowers workers to file class-action lawsuits against employers alleging labor law violations.

A particularly contentious point of PAGA is whether workers who sign pre-employment arbitration agreements can still bring PAGA actions. In one case, the U.S. Supreme Court ruled they cannot, but this year the state Supreme Court declared that in at least some instances they can, roiling the legal waters even more.

This year, meanwhile, the 9th U.S. Circuit Court of Appeals overturned a 2019 state law, sponsored by unions, making it illegal for employers to require potential employees to sign arbitration agreements, reversing an earlier ruling on the same issue. It declared that the law violated the federal law’s preference that employment disputes be settled by arbitration rather than lawsuits.

Finally, California business groups have placed an initiative on the 2024 ballot that would repeal PAGA altogether, alleging that it fattens lawyers’ wallets without doing much for workers. Tens of millions of dollars are likely to be spent by rival business and union groups, with support for the latter from employment attorneys.

Did you get all of that? There’ll be a test later – in November 2024.

About the Author

Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times. CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more columns by Dan Walters, go to calmatters.org/commentary.

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