California has acted to save millions of dollars in government costs by eliminating and consolidating government agencies. Senate Bill 1038, signed by Governor Jerry Brown, continues the Department of Fair Employment and Housing, but eliminates the Fair Employment and Housing Commission, which conducted mediations and hearings to adjudicate discrimination claims for those litigants who did not want to proceed in court. As of January 1, 2013, the Department may file suit directly in court, but only after the parties engage in alternative dispute resolution using the Department's internal dispute resolution division.

Mediation is at no cost to the parties. Courts will be able to award the Department attorneys' fees and costs, including expert witness fees, which will be placed in a special fund. In addition, SB 1038 creates the Fair Employment and Housing Council to draft and amend regulations to give more guidance to employers and employees. The impact of the changes will become clear in 2013 as all litigation will proceed in California's courts. Part of every employer's due diligence review of termination decisions must take into account these changes.