In October 2024, Governor Gavin Newsom signed Senate Bill 940 (SB 940) into law, introducing significant changes to California's alternative dispute resolution (ADR) industry. This legislation aims to establish a voluntary certification program for mediators and arbitrators, marking a major development in the field. Administered by the California State Bar, the new framework promises to formalize oversight of neutrals while ensuring compliance with established standards and consumer protections.

Key Features of SB 940

SB 940 introduces a voluntary registration and certification program for arbitrators and mediators operating in California. The program is designed to create a more structured system of oversight, with the State Bar managing certifications and ensuring neutrals adhere to specific rules. The certification process will likely include compliance with existing standards, such as impartiality, conflict-of-interest disclosures, and procedural fairness.

The law also strengthens existing disclosure requirements. For example, providers are now obligated to disclose prior work with the parties involved in a case, particularly in arbitration. This provision aims to enhance transparency and reduce potential conflicts of interest. Additionally, SB 940 includes consumer protections, such as preventing parties from being required to resolve disputes outside California or forfeiting protections provided under state law.

Rationale for the Law

The ADR industry has grown significantly in recent years, with mediation and arbitration becoming common alternatives to traditional litigation. However, this expansion has occurred with limited oversight, particularly for mediators, who often operate independently. Unlike attorneys and judges, mediators and arbitrators have not been subject to centralized regulation or certification requirements. SB 940 seeks to address this gap by introducing a mechanism to ensure neutrals meet consistent standards of professionalism and ethics.

Voluntary certification under SB 940 is intended to give consumers greater confidence in the qualifications of ADR professionals. By creating a centralized registry of certified neutrals, the law seeks to provide an additional layer of accountability and transparency in the ADR process. It also aims to professionalize the field further, ensuring that practitioners are equipped to handle the increasingly complex disputes brought to mediation and arbitration.

Implementation by the State Bar

The California State Bar is tasked with developing and managing the certification program outlined in SB 940. While the program is voluntary, it represents a significant new area of oversight for the Bar, which traditionally focuses on regulating attorneys. The Bar will need to develop clear guidelines for certification, including eligibility criteria, training requirements, and rules for maintaining certification.

Additionally, the State Bar is expected to establish procedures for addressing complaints against neutrals and ensuring due process for those accused of misconduct. This role mirrors the Bar's existing responsibilities for disciplining attorneys, signaling a new dimension of its regulatory authority. The program's success will depend on the Bar's ability to balance the need for oversight with fairness and accessibility for neutrals seeking certification.

Consumer Protections

A central focus of SB 940 is enhancing protections for consumers engaged in ADR processes. The law prohibits certain practices that could disadvantage parties, such as requiring them to resolve disputes in other states or subjecting them to terms that undermine California's legal protections. These provisions ensure that California residents can rely on ADR processes that reflect the state's robust legal framework.

The strengthened disclosure requirements for neutrals are another key consumer protection. By mandating that arbitrators disclose prior relationships or work with the parties involved, the law aims to prevent conflicts of interest and foster trust in the neutrality of the process. While these requirements primarily apply to arbitration, they reflect broader principles of transparency that benefit all forms of ADR.

Challenges and Concerns

Despite its potential benefits, SB 940 has raised some concerns, particularly among independent mediators and smaller ADR providers. One issue is the possibility of industry consolidation, as large providers with greater resources may find it easier to meet the certification requirements. Smaller providers, on the other hand, may struggle with the administrative burden of compliance, potentially disadvantaging them in the market.

Another concern is the potential complexity of the certification process itself. The law allows for "tiers" of certification, which could create additional layers of paperwork and disclosure requirements. If not implemented carefully, this system could disproportionately impact smaller providers, who may lack the administrative support of larger organizations.

Additionally, questions remain about how the State Bar will handle complaints and due process for neutrals under the new system. While the Bar has experience disciplining attorneys, extending this oversight to neutrals represents uncharted territory. Ensuring fairness and clarity in these procedures will be critical to maintaining confidence in the program.

Implications for the ADR Industry

SB 940 represents a turning point for the ADR industry in California. By formalizing the certification process and introducing new consumer protections, the law seeks to elevate the standards of practice for neutrals and provide greater transparency for parties using ADR services. For consumers, this means increased confidence in the qualifications of neutrals and the fairness of the ADR process.

For ADR professionals, the law presents both opportunities and challenges. Voluntary certification offers a chance to demonstrate professionalism and commitment to ethical standards, potentially enhancing their credibility in the market. However, it also introduces new administrative responsibilities, particularly for those operating independently or outside large organizations.

The law may also influence the broader evolution of the ADR industry. As certification becomes more common, it could drive demand for training programs and professional development opportunities tailored to the requirements of SB 940. Over time, this could contribute to the professionalization of ADR as a distinct field, separate from its historical roots in the legal profession.

Future Outlook

The implementation of SB 940 will be closely watched by stakeholders in the ADR community and beyond. The State Bar's ability to develop a fair, transparent, and accessible certification program will be critical to the law's success. In particular, ensuring that the program supports small and independent providers while maintaining high standards of practice will be a key challenge.

The law also has the potential to serve as a model for other states considering similar reforms. As the ADR industry continues to grow nationwide, the need for consistent standards and oversight is likely to become an increasingly important issue. California's experience with SB 940 could provide valuable lessons for other jurisdictions seeking to balance regulation with the flexibility that makes ADR an attractive alternative to litigation.

SB 940 marks a significant step forward for the ADR industry in California. By introducing voluntary certification and strengthening consumer protections, the law aims to enhance the credibility and professionalism of ADR processes. While challenges remain, the law represents a valuable opportunity to elevate standards and ensure that ADR remains a trusted and effective means of resolving disputes.

See Senate Bill SB-940