Regulating the Economy Towards Prosperity
The refreshing winds of September are filling the air, and as they sweep in, they bring with them that rosy scent of fresh legislation: as always, fiery, thick, and perfectly half-baked. Two pieces of would-be/will-be law have come under the popular spotlight recently. The first is that of Assembly Bill 889 put forward by Assemblyman Tom Ammiano (D – San Francisco).
The bill would require rest-breaks, over-time pay, and (you guessed it) workers’ compensation insurance for domestic workers such as care persons, nannies, babysitters and cleaners.
While exempting babysitters under the age of 18, I expect this bill, if made law, to send presently free-lance domestic workers into the arms of organized companies. No matter how much I want to see a perfectly good classic movie ruined by a modern-recreation in a theater, I have no intention of hiring a human resources staff to help me comply with this law while hiring a babysitter for the evening. I imagine the typical parent in California will likely feel the same way.
So free-lancing, self-employment for babysitters and other domestic workers might decrease, insurance profits may go up, and Sacramento will press harder on small employers with its left hand while continuing to squeeze larger businesses with its right.
The second piece of legislation is Senate Bill 684, which makes it more difficult for insurance companies to have and to enforce arbitration clauses in their workers’ compensation insurance contracts, by requiring a separate disclosure of the existence of the arbitration clauses, the venue and choice of law of the arbitration, and the fact that they are negotiable.
Authored by State Senator Ellen M. Corbett (D – San Leandro), the legislation was greeted with enthusiasm by Insurance Commissioner Dave Jones in a Department of Insurance Press Release.
Many insurance companies are regional or national, and so would normally be subject to the contract laws of several states (wherever their policy holders entered into the contract). Arbitration clauses allow all disputes to be resolved in one state, and the insurance company’s legal department needs to know only one state’s laws.
Now, insurers will have to either face increased costs in negotiating, quoting, and preparing insurance contracts, or retain different legal departments for every state in which they offer their services. But while the costs of operation go up, workers’ compensation insurance rates are set by law and cannot be increased.
SB 684 has passed both the Assembly and the Senate and now awaits Governor Brown’s signature. Perhaps, if the legislation is signed into law, an update will be necessary on the benefits of self-insurance.
Regarding the fairness of arbitration agreements:
The main reason legislation such as SB 684 is deemed necessary is because arbitration agreements while cost effective and time efficient, have a aura of being too unfair toward the plaintiff. The notion that arbitration is fair is not how it’s perceived.
Anytime there is a mandatory arb. clause in any employment contract it always seems like the employee has not only has no option in going to arb, but is in an area where they know nothing about the process, or how it’s judged, but also there’s sometimes a costs of going to arbitration (which the employee cannot pay, or is not willing to pay)
The choosing of arbitrators may require consent of both parties, but the employee has no information on which to base his decision on and feels that the insurance company or the employer has all the resources. While efficient, arbitration takes away the jury, takes away the human aspect and connection that the employee has in the decision making process.
I am in favor of the arbitration idea. But in taking away the jury, the arbitration process needs to give something to the employee to believe that the process is safe and fair.
Paul, that’s all true, but the fact remains that prepared contracts make a neatly packaged and predictable product for insurance companies to sell, increasing their efficiency and lowering their costs. Maybe some of them won’t be able to afford continuing to do business in California if they can’t pre-include arbitration clauses in their contracts, and that will result in less options for non-self-insured employers.
I agree that without arb. clauses it may get too expensive to do business because of increase litigation costs.
Arbitration clauses benefit the companies more than they do the employees. Keeping that in mind, the companies should be willing to put up more of the costs, and make the process easier to handle for the employee.
The employee gains very little by going to arbitration. Not paying litigation costs for employees is an issue, but they can most likely find some form of contingent representation.
I’m not sure what the breakdown is (in terms of costs), but it appears that since companies are gaining more out of the arb. process than the employees the companies should do more to make the process appear more neutral and less intimidating to the employees.
If they manage to find some balance in those regards, the legislatures may not feel the need to overly protect the employees.
I think the law actually has to do with employers disputing the terms of coverage with their insurance carriers. Naturally, this isn’t an issue with self-insured employers, but for most employers in California, when a dispute arises as to area of coverage, maximum coverage, etc., the arbitration clauses are activated. Employees aren’t really affected by this.
I write from this perspective to play devils advocate. If I were an employee who was forced to arb. my dispute with the company I work for, I would feel intimidated because this process is new to me, while the company probably has a department for this type of thing.
However, if I go to court I can get a judge and/or a jury. Judges and juries feel like protection for me. If I am to lose those protections and allow an arbitrator to make the final decision… why? Who paid for this arbitrator? Who picked him? What do I know about him, or what does he know about my case? or… should I get a lawyer?
If I had a lawyer representing for the arb. I would feel safer. Maybe, that could be a partial solution.
That’s a very good point, actually. Legislation like this always addresses the balance of cutting costs and providing for consumer protection. If Governor Brown signs this bill, it will be worthwhile to see the ripple effects.
Between companies the arbitration clauses should be encouraged, because of the efficiency issues you brought up. Companies should be sophisticated enough to fend for themselves. Or have the desire to avoid expensive litigation costs to defend in arbitration.
I was writing from a individual’s standpoint.