NEW LAW – SENATE BILL 762 – CHANGES TO ADHESION CONTRACTS AND THEIR ARBITRATION PROVISIONS

Recently signed into law by Governor Newsom is California Senate Bill (“SB”) 762, which attempts to ‘eliminate corporate delay tactics’ relating to adhesion contracts. Adhesion contracts, also known as ‘standard form contracts’, ‘boilerplate contracts’ or ‘take-it-or-leave it’ agreements, are contracts drafted by one party (often a business or large company) and signed by another party (usually one with weaker bargaining power, often a consumer of goods or services). The second party generally does not have strong leverage or power to negotiate the terms of the contract. Adhesion contracts are utilized for employment matters, leases, vehicle purchases and consumer contracts and other uses.  One must accept the whole agreement or reject it in its entirety.  Often, these agreements will contain an arbitration provision.  The new law attempts to address the issue involving the creation of unnecessary delays by the drafter of an adhesion contract (the ‘drafting party’) that benefits the drafting party’s interest.

The new law now imposes certain requirements on these agreements and a new ‘reasonableness’ limitation on time limits.

In the co-authors’ press release, Senator Wieckowski (D-Fremont) and Senator Hertzberg (D-Van Nuys) announced that the arbitration bill will ‘eliminate corporate delay tactics.’ 

In pertinent part, the release states:

Over half of America’s workforce has been forced to sign mandatory arbitration provisions as a condition of employment. These mandatory provisions prevent consumers and workers whose rights have been violated from pursuing their claims in court and instead force them into arbitration proceedings that overwhelmingly favor businesses and employers. With workers and consumers barred from court, businesses often attempt to strategically withhold or delay payment to the arbitration service provider to obstruct the arbitration proceeding. Blocked from the courts and delayed in arbitration, claimants cannot get their cases resolved.

See the entire press release here: https://sd10.senate.ca.gov/news/2021-09-22-governor-newsom-signs-wieckowski-arbitration-bill-eliminate-corporate-delay-tactics

SB 762 changes the existing late in an effort to prevent delays in arbitrations caused by the drafting party.

REQUIREMENT OF PROMPT INVOICES BY ARBITRATION PROVIDER

California Code of Civil Procedure section 1281.97, subsection (a), currently states that in an employment or consumer arbitration, a drafting party that fails to pay certain required fees and expenses within 30 days of the due date: (i) waives their right to compel arbitration, (ii) is in default of the arbitration, and (iii) materially breaches the arbitration agreement.  Under SB 762, subsection (a)(2) is added to require that the due date for the requested fees and costs be provided ‘immediately’ or on the ‘same day.’  The invoices to all parties must state the full amount of the funds owed for the arbitration and the due date.  This reduces the opportunity for the drafting party to request ‘extensions’ of time from the arbitrator and, thereby, circumvent the original intent of the law. 

‘REASONABLE’ TIME LIMIT ADDED TO ADHESION CONTRACTS

SB 762 creates a new time limit on all adhesion contracts.  The time limit must be ‘reasonable.’  The new code is found in Civil Code section 1657.1 and provides: “Any time specified in a contract of adhesion for the performance of an act required to be performed shall be reasonable.”

Civil Code section 1657.1 applies to all adhesion contracts controlled by California law.  This is an attempt to keep drafting-parties of adhesion contracts from creating unreasonable delays.

The new law goes into effect on January 1, 2022.

For the language of the new law, click here:  https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB762

If you or your business utilizes adhesion contracts, contact Dias Law Firm, Inc. for a consultation to make sure that you are in compliance with SB 762.

By: Steven E. Alfieris, Esq.

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