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Can I require customers to sign contracts with binding arbitration clauses in California? What are the requirements?

Yes, businesses can require customers to sign contracts with binding arbitration clauses in California, but the arbitration program must meet certain requirements to ensure fairness and impartiality.

Requirements for Binding Arbitration Clauses in California

According to California Code of Regulations, Title 16, Section 3398.1, the arbitration program must be funded and competently staffed at a level sufficient to ensure fair and expeditious resolution of all disputes. The arbitration program must not charge consumers any fee for use of the program. The manufacturer, and the sponsor of the arbitration program (if other than the manufacturer), must take all steps necessary to ensure that the arbitration program, and its arbitrators and staff, are sufficiently insulated from the manufacturer and the sponsor, so that the decision of the arbitrators and the performance of the staff are not influenced by either the manufacturer or the sponsor.

Steps necessary to insulate the arbitration program from influence by the manufacturer or sponsor shall include, at a minimum: committing funds in advance, basing personnel decisions solely on merit, and not assigning conflicting manufacturer or sponsor duties to program staff persons. Steps necessary to insulate the arbitration program from influence by the manufacturer or sponsor also shall include steps necessary to insulate the program’s arbitrators from influence. At the very least, no employee, agent or dealer of the manufacturer shall communicate directly or otherwise participate substantively regarding the merits of any dispute with the arbitrator who is to decide that dispute, except as permitted by Section 3398.8.

The arbitration program shall impose any other reasonable requirements necessary to ensure that the members and staff act fairly and expeditiously in each dispute. An arbitration program shall maintain both the fact and appearance of impartiality [1.4].

Additionally, the arbitration program must maintain records on each dispute of which it has received notification, which shall include all relevant information such as the name, address, and telephone number of the consumer and the manufacturer, the make and vehicle identification number of the vehicle involved, the date of receipt of the dispute and the date of disclosure to the consumer of the decision, all letters and other written documents submitted by either party, and the decision of the arbitrator, with information as to date, time and place of meeting, the identity of arbitrators voting, and the reasons for the decision [1.1].

Reports to the Arbitration Certification Program by Arbitration Programs are also required. The arbitration program shall notify the Arbitration Certification Program in writing of any material changes in the information or materials submitted in or with the application for certification or subsequently at the request of the Arbitration Certification Program, and shall do so either before or within a reasonable time after the change becomes effective. The arbitration program shall provide to the Arbitration Certification Program, six months after certification and annually thereafter, a report on disputes closed during the reporting period [1.2].

In summary, businesses can require customers to sign contracts with binding arbitration clauses in California, but the arbitration program must meet certain requirements to ensure fairness and impartiality.

Source(s):
Jurisdiction

California