BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 335|
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THIRD READING
Bill No: AB 335
Author: Fuentes (D)
Amended: 7/23/09 in Senate
Vote: 21
SENATE LABOR & INDUS. RELATIONS COMMITTEE : 4-2, 6/25/09
AYES: DeSaulnier, Ducheny, Leno, Yee
NOES: Wyland, Hollingsworth
SENATE JUDICIARY COMMITTEE : 3-2, 7/14/09
AYES: Corbett, Florez, Leno
NOES: Harman, Walters
ASSEMBLY FLOOR : 45-30, 5/18/09 - See last page for vote
SUBJECT : Employment contracts
SOURCE : California Employment Lawyers Association
DIGEST : This bill creates a rebuttable presumption that
a choice of law or a choice of forum clause in an
employment agreement that is a condition of employment is
unconscionable, violates public policy, and is void, and to
enumerate the factors that guides the court in determining
whether the presumption has been rebutted by an employer
seeking to enforce the choice of law or choice of forum
clause.
ANALYSIS : Existing law codifies the established doctrine
that the courts will not enforce an unconscionable
CONTINUED
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contract. Thus, Civil Code Section 1670.5 provides that,
if a court finds as a matter of law that a contract or any
clause of the contract was unconscionable at the time it
was made, the court may refuse to enforce the contract or
the unconscionable clause.
Existing case law, in which the California Supreme Court
struck down a mandatory arbitration agreement in an
employment contract as an unconscionable contract of
adhesion, the court held that "unconscionability has both a
'procedural' and a 'substantive' element, the former
focusing on 'oppression' or 'surprise' due to unequal
bargaining power, the latter on 'overly harsh' or
'one-sided' results." ( Armendariz et al. v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83.)
Existing case law, in which the appellate court refused to
enforce a forum selection clause in a consumer contract,
the court stated that forum selection clauses will be
enforced only "so long as California consumers will not
find their substantial legal rights significantly impaired
by their enforcement." "California courts will refuse to
defer to the selected forum if to do so would substantially
diminish the rights of California residents in a way that
violates our state's public policy." ( America Online, Inc.
v. The Superior Court of Alameda County (2001) 90
Cal.App.4th 1.)
Existing law provides, with respect to a contract between a
contractor and a subcontractor for the construction of a
public or private work of improvement in this state, that a
provision shall be void and unenforceable if it purports to
require any dispute between the parties to be litigated,
arbitrated, or otherwise determined outside this state or
purports to preclude a party from commencing such a
proceeding or obtaining a judgment or other resolution in
this state or the courts of this state. (Code of Civil
Procedure Section 410.42.)
Existing law provides the waiver of certain substantive
rights as against public policy, such as a person's rights
under the Consumer Legal Remedies Act (Civil Code Section
1751) and a person's rights under state securities laws
(Corporation Code Section 25701). Thus, those rights are
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non-waivable.
Existing law makes certain other employment contract
provisions, such as non-compete clauses, void or voidable
as against public policy.
This bill establishes a rebuttable presumption that a
choice of law or choice of forum provision in an employment
agreement or other statement of an employer's policies
applicable to its employees is unconscionable, presumed to
violate public policy, and is void if it would:
1. Requires an employee or job applicant to arbitrate or
litigate outside of California, a claim that arose from
employment or conduct occurring in California.
2. Deprives the employee or job applicant of the protection
of California law for such a claim.
This bill requires a court to consider the following
factors to determine whether the rebuttable presumption
described above has been rebutted by an employer seeking to
enforce the choice of law or choice of forum clause in an
employment agreement:
1. Whether the employee was represented by counsel in
negotiations regarding the employment agreement at the
time that the choice of law or choice of forum provision
was incorporated into the employment contract.
2. Whether separate consideration was provided by the
employer in exchange for the choice of law or choice of
forum provision.
3. Whether the choice of law or choice of forum provision
provides the employee with rights and remedies that are
equal to, or greater than, those provided by California
law with respect to the claim.
4. Whether the choice of law or choice of forum provision
imposes a financial burden or other burden that would
deter the employee from pursuing a claim against his or
her employer.
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This bill states that it does not replace any other
remedies available under law.
Prior legislation
AB 1043 (Swanson), of 2007 - Vetoed.
AB 1740 (Assembly Judiciary Committee), of 2005 - Died in
Senate Judiciary Committee.
NOTE: For detailed background information refer to Senate
Judiciary Committee Analysis.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/18/09)
California Employment Lawyers Association (source)
American Federation of State, County and Municipal
Employees, AFL-CIO
California Applicants Attorneys Association
California Labor Federation
California School Employees Association AFL-CIO
Consumer Attorneys of California
OPPOSITION : (Verified 8/18/09)
California Chamber of Commerce
Civil Justice Association of California
ARGUMENTS IN SUPPORT : Supporters are unanimous in
calling employment agreements with choice of law and forum
provisions "bad for employers, bad for employees, and bad
public policy for the State of California." The Consumer
Attorneys of California (CAOC) contends that "[e]ach day
California Legislators vote and pass laws on employment
issues, with the full intent that the laws they pass be
enforced. Unfortunately, some businesses (particularly out
of state businesses) are ignoring California law and, in
effect, ignoring the California Legislature, by simply
forcing employees to sign, as a condition of employment, a
contract stating disputes arising from California claims
from California employees will be decided in another state,
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another forum."
Supporters of this bill state that it makes sense for
Californians (both employers and employees) to have full
benefit of the laws our Legislature enacts. "If a business
does business here, it should be required to follow
California law and not avoid our protections by simply
forcing employees, as a condition of employment, to seek
redress in another forum," CAOC argues.
The California School Employees Association also supports
this bill because "[a]pplicants for employment are at a
complete and total disadvantage when employers make demands
such as [using a forum other than California or using other
than California law to resolve employment disputes]. Once
employed, these workers may have waived protections in
California law and agreed to dispute resolution processes
that are inferior to those provided in California."
The California Applicants Attorneys Association believes
that the bill, creating a rebuttable presumption that a
choice of law or forum provision that requires an
employment-related dispute to be resolved in another state
violates public policy and is unconscionable and void,
would narrow case law, including the holding in Olinick ,
supra, in which a California worker sought to bring an age
discrimination action under the Fair Employment and Housing
Act, but was forced to file the claim in New York because
of such a choice of forum clause in his employment
contract.
ARGUMENTS IN OPPOSITION : The Civil Justice Association
(CJA) opposes this bill, because it will "unnecessarily
prevent California's employers from using forum selection
and choice of law clauses in their employment contracts."
While this organization supports parties' rights to freely
contract as they wish, "[c]ontractual relationships tend to
differ from situation to situation, and certain situations
may be best served by a choice of law other than
California's." CJA contends that the bill is unnecessary,
as California law "already protects residents from
unreasonable contract provisions and unreasonable choice of
law provisions"; that "we should allow judges to balance
factors in individual cases to determine if a choice of law
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is appropriate"; and that the bill "sets a dangerous
precedent for prohibiting other choice of law provisions."
CJA's argument that judges should be allowed to balance
factors in individual cases to determine if a choice of law
clause is appropriate is addressed by the fact that the
bill now does not impose an outright ban, but rather it
creates a rebuttable presumption that a choice of law or
forum is unconscionable, violates public policy, and void,
with the court being guided by various factors in making a
determination of whether the presumption has been rebutted.
The California Chamber of Commerce in turn opposes this
bill, arguing that: (1) it is unnecessary and overrides
judicial discretion; (2) it could result in fewer
employment opportunities for Californians ("In today's
global workplace, employers and jobs are increasingly
mobile and not constrained by geographical boundaries.
Technology allows employers headquartered in other states
of other countries to have increasing flexibility to offer
jobs around the globe. This bill discourages such
employers from offering employment in California if doing
so means they travel across the country or overseas to
appear in California courts."); and (3) whether to accept a
choice of forum or law as a "condition of employment" is in
fact tied to a voluntary decision by the employee to accept
an offer of employment ("Every offer of employment involves
a set of conditions about which the prospective employee
makes choices. When unacceptable, the offer of employment
is rejected.") The California Chamber of Commerce believes
this bill sets a bad precedent for statutory interference
with the constitutional right of parties to contract.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Coto, Davis, De La Torre, De Leon, Evans, Feuer,
Fong, Fuentes, Furutani, Hall, Hayashi, Hernandez, Hill,
Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, Nava, John A. Perez, V. Manuel Perez,
Portantino, Ruskin, Salas, Skinner, Solorio, Swanson,
Torlakson, Torrico, Yamada, Bass
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Blakeslee, Conway, Cook, DeVore, Duvall, Emmerson,
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Fletcher, Fuller, Gaines, Garrick, Gilmore, Hagman,
Harkey, Huber, Jeffries, Knight, Logue, Miller, Nestande,
Niello, Nielsen, Silva, Smyth, Audra Strickland, Tran,
Villines
NO VOTE RECORDED: Eng, Galgiani, Price, Saldana, Torres
AGB:do 8/18/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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