BILL ANALYSIS Ó AB 359 Page 1 Date of Hearing: May 12, 2015 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair AB 359 (Gonzalez) - As Amended March 26, 2015 As Proposed to be Amended SUBJECT: Grocery workers KEY ISSUE: Should employees of a large grocery store be entitled to retain their jobs for a 90-day transition period after the grocery store is purchased by a new owner, subject to the new owner's right to terminate any of those employees for cause or to reduce the size of their workforce? SYNOPSIS This measure will protect the jobs of grocery workers - at least for a 90-day transition period - if the store where they work is purchased by another company that will continue operating the business as a grocery store. The bill only applies to larger grocery stores (greater than 15,000 square feet). A new (or successor) employer would retain the right to terminate employees for cause during the 90-day transition period. Once the 90-day period ends, the employer would be required to "consider" the former employees for permanent employment, but would not be required to hire them. According to the author, mergers and buy-outs in the supermarket industry can have a AB 359 Page 2 devastating effect on workers who suddenly find themselves out of work for no fault of their own. Existing state law provides similar, though not identical, protections for janitorial workers and public transit workers. In addition, at least four California cities - Los Angeles, San Francisco, Santa Monica, and Gardena - already have local retention ordinances for grocery store workers. As discussed in greater detail in the analysis, the California Supreme Court in 2011 upheld the Los Angeles ordinance, the major provisions of which are almost identical to this bill. The bill is co-sponsored by the Western Center on Law & Poverty and the Western Section of United Food and Commercial Workers Union. The bill is opposed by the California Grocers Association and a coalition of business groups led by the Chamber of Commerce, which labels this bill as a "job killer" on its website. Opponents contend that this bill improperly restricts the successor employer's right to select its own workforce; undermines California's long-standing at-will employment presumption; forces successor employers to abide by terms of union contracts to which they never agreed; and has little relationship to the health and safety benefits claimed by the proponents. The bill recently passed out of the Assembly Labor & Employment Committee on a 5-2 vote. The author will take a clarifying amendment in this Committee. SUMMARY: Establishes a worker retention requirement in the event of a change of ownership or control of grocery establishments. Specifically, this bill: 1)Applies to any grocery store that is over 15,000 square feet in size and that sells primarily household foodstuffs for offsite consumption, as specified. 2)Requires an incumbent grocery employer, within 15 days after the execution of the transfer document, to provide to the successor grocery employer with a list of the name, address, date of hire, and employment occupation classification of each AB 359 Page 3 eligible grocery worker, and requires the incumbent grocery employer to post advance public notice of the change in control. 3)Requires the successor grocery employer to hire from a list provided by the incumbent employer for a period beginning upon execution of the transfer document and continuing for 90 days after the grocery establishment is fully operational and open to the public under the successor grocery employer. 4)Requires a successor grocery employer to retain each eligible grocery worker hired from the preferential hiring list for a period of at least 90 days after the eligible grocery worker's employment commencement date. During this 90-day transition employment period, eligible grocery workers shall be employed under the terms and conditions established by the successor grocery employer and pursuant to the terms of a relevant collective bargaining agreement, if any. 5)Provides that if the successor grocery employer determines that it requires fewer workers than were required by the incumbent grocery employer, it shall retain workers by seniority within each job classification, as specified. 6)Provides that during the 90-day transition employment period, the successor grocery employer shall not discharge an incumbent employee without cause. 7)Provides that at the end of the 90-day transition period, the successor grocery employer shall make a written performance evaluation for each eligible grocery worker. If the worker's performance during the 90-day period is satisfactory, the successor grocery employer shall consider offering the worker continued employment under the terms and conditions AB 359 Page 4 established by the successor grocery employer and as required by law. 8)Permits an eligible grocery worker to bring a civil action against the incumbent grocery employer or the successor grocery employer for violations of these requirements, and authorizes the worker to be awarded hiring and restatement rights, front pay or back pay, the value of benefits the worker would have received, attorney's fees and costs, as specified. 9)Specifies that parties subject to this bill may, by collective bargaining agreement, provide that the agreement supersedes the requirements of this bill. 10)Provides that this bill shall not apply to grocery establishments that will be located in geographic areas designated by the U.S. Department of Agriculture as a "food desert," as specified. EXISTING LAW: 1)Requires a successor contractor to retain janitorial employees of an incumbent contractor for 60 days and to offer permanent employment to satisfactory employees at the end of the 60-day period. Specifies, however, that the successor contractor is not required to pay the same wages or provide the same benefits that were paid or provided by the incumbent contractor. (Labor Code Section 1060 et seq.) 2)Requires, for purposes of public transit contracting, a contract-awarding entity to give a 10 percent bid preference to a bidder who agrees to retain public transit employees of AB 359 Page 5 the prior contractor for a period of not less than 90 days. (Labor Code Section 1070 et seq.) FISCAL EFFECT: As currently in print this bill is keyed non-fiscal. COMMENTS: Under existing law, when a large grocery store is bought out by another company, the grocery store employees are vulnerable to instant termination - even if the purchasing company intends to continue operating the business as a grocery store. This bill would provide a measure of protection to those workers by allowing them to keep their jobs during a reasonable transition period. Specifically, when the old (incumbent) owner sells the store to a new (successor) owner, the incumbent owner must provide the successor owner with a list of all of its non-managerial employees and their contact information. The successor owner would then be required to hire employees from that list and retain those employees for the 90-day transition period. The successor owner could terminate those employees for cause at any time during the 90-day period. If the successor owner determined that it needed fewer employees than the incumbent owner, then the incumbent employees would be selected and retained on a seniority basis or pursuant to the terms of any existing collective bargaining agreement. At the end of the 90-day period, the successor owner would be required to make a written performance evaluation of each employee retained under these provisions and "consider" offering the employee continued employment under any lawful terms established by the successor employer. The successor would not be required to retain any of the employees from the prior owner beyond the 90-day period. The bill also imposes various notice requirements on the incumbent employer and record keeping requirements on the successor employer. In addition, this bill would permit incumbent employees to bring a cause of action alleging a violation by either an incumbent AB 359 Page 6 owner (e.g. for failing to provide notice of sale, provide an accurate list to the successor, etc.) or a successor owner (e.g. for failing to hire from the list, terminating without cause, etc.) In that action, an incumbent employee could seek any of the following: reinstatement and hiring rights; front and back pay; and the value of benefits the employee would have received under the successor employer's benefit plan. If the incumbent employee is the prevailing party in the litigation, the bill would require the court to award reasonable attorney's fees and costs to him or her. According to the author, the 90-day transition period will give employees the time to search for other employment should the successor opt not to retain the employees on a permanent basis. In short, the measure will give employees a reasonable buffer against the potentially disruptive effects of business decisions beyond their control. Similar Los Angeles Ordinance Survived Legal Challenge. Many of the legal and constitutional objections that have been raised against this bill were addressed and rejected in a case decided by the California Supreme Court four years ago. In that case, the court considered challenges to a City of Los Angeles ordinance that is nearly identical to this bill. The California Grocers Association (CGA) made three claims in challenging that ordinance. First, to the extent that the ordinance claimed as one of its purposes protection of public health and safety, CGA claimed that it was preempted by the state Health & Safety Code, which expressly occupies the entire health and safety field for retail food facilities. Second, CGA argued that the ordinance was preempted by the National Labor Relations Act (NLRA) to the extent that, in the case of a unionized business, the ordinance imposed on the successor owner the bargaining and contractual obligations agreed to by an incumbent owner, thereby limiting the successor's right to negotiate its own collective bargaining agreement (CBA). Third, CGA argued that the ordinance violated the equal protection clauses of the state and federal AB 359 Page 7 constitutions because it relied on several arbitrary classifications, including distinctions between large stores and small stores, and between grocery stores and other businesses. (California Grocers Association v. City of Los Angeles 52 Cal. 4th 177, 186-187.) Although the trial court and Court of Appeal sided with the CGA on all but the equal protection claims, the California Supreme Court upheld the ordinance against all of the claims raised by CGA. First, as to whether the ordinance was preempted by the Health & Safety Code, the court reasoned that mere intent language and city council debates suggesting that a major purpose of the ordinance was to protect health and safety - by retaining workers experienced in handling food products - did not make the ordinance a health and safety law. The Health & Safety Code sets very specific standards relating to how food must be handled in a retail grocery store, the court noted, but the ordinance made no attempt to set standards of this sort. The ordinance, in other words, did not regulate health and safety standards; its proponents simply maintained that keeping experienced workers would have an incidental positive effect on health and safety. (Id. at 189-193.) Second, the court rejected the argument that the ordinance was preempted by federal labor law. The court argued that NLRA occupied the field only as to the regulation of the collective bargaining "process;" federal law does not preempt the field when it comes to regulating conditions of employment that protect all workers, union and nonunion alike. The court concluded that the ordinance did "not regulate the process by which a bargaining agreement may be reached . . . rather, it temporarily preserves the status quo . . . whether the workforce is unionized or not." (Id. at 200.) Finally, on the equal protection claims, the court concluded that CGA failed to show that there was no rational basis for the distinctions. While the problem that the city attempted to address could arise in non-grocery settings, and in grocery stores smaller than 15,000 square feet, a legislative body may reasonably attack a problem incrementally, and it could reasonably conclude that grocery stores had, at AB 359 Page 8 that time, a particularly important impact on both workers and the community. It was not the court's job to decide if the city was right or wrong on this point, but only to consider whether there was any rational basis for the decision to limit the ordinance in the manner it was drafted. (Id. at 208-211.) Impact of Los Angeles Ordinance on Area Grocery Industry. The Los Angeles grocery worker retention ordinance upheld by the California Supreme Court has apparently not led to dire consequences for the grocery industry in Los Angeles. In support of this bill, the author's office provided the Committee with a letter from U.C. Davis Professor Chris Benner who examined data on the retail grocery industry in the Los Angeles area. Professor Benner found that grocery store employment in Los Angeles County increased by 18% between 2005, when the measure was enacted, and 2013. During that same period, the number of grocery stores in the area increased by 8.5%. Benner suggested that growth in the grocery industry may well be higher than his study suggests, because the study did not include the "general merchandise stores" (Costco, Target, Walmart, etc.) that increasingly sell a substantial amount of groceries. When this bill was heard in the Assembly Labor & Employment Committee last week, the opponents claimed that these figures were misleading because the numbers provided by Professor Benner apply to all of Los Angeles County, whereas the ordinance applied only to the City of Los Angeles. In addition, opponents claimed that even though the ordinance was enacted in 2005, the enforceability of the ordinance remained uncertain until it was upheld by the California Supreme Court. While these are certainly valid observations, the opponents have not offered any counter evidence that the Los Angeles ordinance - or any similar ordinances enacted in other California cities - have had a detrimental impact on grocery industry profits, the number of grocery stores, or the number of grocery workers. Statutory Exception to California's At-Will Presumption. The coalition opposing this bill claims that this bill undermines AB 359 Page 9 the traditional "at-will presumption" embodied in the California Labor Code, which holds that in the absence of an agreement specifying some specified term, the employment relationship may be terminated "at the will of either party" upon notice to the other, without need of giving any "cause" for the termination. However, the key word in California's "at-will presumption," is presumption. According to the California Supreme Court, the presumption may be overcome not only by express agreement, but also by a statutory exception for reasons of public policy. (Guz v. Bechtel National, Inc. (2000) 24 Cal. 4th 317, 336.) This bill creates a statutory exception for reasons of public policy. Employers Right to Hire Workforce and Negotiate Collective Bargaining Agreement. While opponents raise a number of objections to this bill, most of them center upon the limitations that the bill imposes on the successor employer's right to hire its own workforce. By limiting the employer's freedom of choice over who it will hire, opponents point out, the bill also eliminates an employer's opportunity to investigate applicants before hiring them. This precludes the employer from conducting any pre-hiring background checks and potentially exposes employers to liability for negligent hiring. Opponents also claim that this bill is inconsistent with the NLRA and the case law interpreting it, which generally provides that a successor employer has no duty to retain the employees of the prior employer or to abide by any collective bargaining agreement between the prior employer and incumbent employees' union. However, as the California Supreme Court observed in the Los Angeles ordinance case, the NLRA may not impose a duty on successor employers to maintain incumbent employees, but that is only because the NLRA is silent on that issue. In rebutting claims that the ordinance was preempted by NLRA, the California Supreme Court stressed that while there is no obligation on the successor employer under the NLRA, it does not follow that state or local government could not impose such a requirement on successor employers. In sum, federal law does not require the successor owner to hire incumbent employees, but this does not AB 359 Page 10 mean that it prohibits states or local governments from imposing such requirements so long as they do not interfere with the subject matter of the NLRA: the "process" of collective bargaining. Relatedly, opponents claim that this bill inappropriately forces the successor to abide by a collective bargaining contract that it never negotiated and to which it never consented. Indeed, the bill does require the successor, at least for the 90-day period, to employ the incumbent workers "under the terms and conditions established by the successor grocery owner and pursuant to the terms of a relevant collective bargaining agreement, if any." It should be noted, however, that this clause only appears in the subdivision dealing with the 90-day transition period. The subdivision pertaining to the post-transition period states that any employees offered continued employment will be employed "under the terms and conditions established by the successor grocery employer and as required by law." The Los Angeles ordinance that was upheld by the California Supreme Court contained this same language. Requiring the successor employer to abide by the terms of a collective bargaining agreement during the retention period did not bind the successor employer to the prior contract, it only require - consistent with the NLRA - that the successor employer maintain the "status quo" during the retention period. The court stressed that the NLRA only preempts state or local laws that regulate the collective bargaining "process." The ordinance, like this bill, requires the successors to temporarily abide by the "terms" of the CBA for the 90-day period in order to maintain the status quo, but neither the ordinance nor this bill affects the "process" of collective bargaining. Once the 90-day period ends, the successor is free to "negotiate its own terms" of employment as it chooses. (California Grocers Association, supra, fn. 17, and accompanying text.) Put another way: while it is true that the successor cannot be bound by a contract it did not make, this bill does not bind the successor by the contract to employ the workers under the terms of the CBA. The successor is merely bound by AB 359 Page 11 the statute to maintain the status quo until the end of the 90-day period. A Job-Saver or a "Job-Killer." According to the author and sponsor, this bill seeks to save the jobs of grocery workers who, through no fault of their own, find themselves out of work because of business decisions made by other people. The California Chamber of Commerce, on the other hand, has targeted this bill as a "job killer." The Chamber's view assumes that this bill will discourage businesses that might otherwise acquire a failing grocery store and keep it running from doing so. Although the opponents' coalition letter maintains that the grocery industry is reluctant to take over existing facilities in areas of the state with retention ordinances, the Committee is not aware of any evidence supporting this claim. Even if there were evidence that Los Angeles, San Francisco, Santa Monica, and Gardena, the cities that have adopted such ordinances, have failing grocery stores that go unpurchased, one could still not say that retention statutes, as opposed to some other characteristic of those cities, was the cause. Proposed Author Amendment. When this bill was heard in Assembly Labor & Employment Committee, the question was discussed among the author, witnesses, and Committee members whether the provisions of this bill would apply to a grocery store that had already closed and was vacant. For example, if the grocery store had been closed for some extended period of time, would the successor owner be required to find and offer employment to workers who had already been terminated? The author indicated in her comments that this was not the intent of the bill; rather, the bill was only intended to apply where an operating grocery store was sold to another company that planned to continue operating the grocery store. To be sure, the store would most likely need to close for some period during the transition from one owner to the other, but according to the author the bill would only apply to a store that was operating at the time of the sale. It may well be that this is implicit AB 359 Page 12 in the bill; it allows grocery workers who are employed to continue their employment, but the bill is apparently not intended to ensure employment for workers who had been terminated before the sale. In order to clarify this intent, the author will take the following amendment in this Committee: - On page 3, line 30 replace "prior to" with "at the time of" ARGUMENTS IN SUPPORT: According to the author, AB 359 will give job protection "to workers in the rapidly changing grocery industry statewide. Good middle class grocery jobs should not be lost just because shareholders of billion-dollar retailers seek to make even more profits through a Wall Street-style merger." The author adds that AB 359 "will ensure the proper maintenance of health and safety standards in grocery stores during the larger grocer mergers." It will do this by keeping "the grocery workers with knowledge of proper sanitation procedures, health regulations, and state laws." The United Food and Commercial Workers Union (UFCW), a co-sponsor, supports AB 359 because it will benefit "the approximately 383, 900 grocery workers in California." UFCW claims that while the food retail industry has grown at a "staggering rate" over the last twenty years or more, the same cannot be said for the wages of the employees who work in that industry. "As the largest provider of food to the nation," UFCW concludes, "California should provide workers who sell groceries good jobs - jobs that will allow their families to purchase and enjoy that food themselves." ARGUMENTS IN OPPOSITION: A coalition of business groups spearheaded by the California Chamber of Commerce oppose this "job killer" bill as one that "unfairly forces grocery employer to hire a predecessor's employees, undermines the at-will AB 359 Page 13 employment presumption, and ensures continued union representation, despite any changes in employers." Along with limiting the employer's freedom to hire, the bill correspondingly eliminates an employer's opportunity to investigate applicants before hiring, thereby precluding the employer from conducting any pre-hiring background checks. The coalition also argues that this bill undermines the at-will presumption in California law in order to protect incumbent unions. The bill will do this, according to opponents, because the federal "successor employer" doctrine provides that if the successor employer chooses to hire the majority of the predecessor's employees and is generally in the same business, the successor must recognize the incumbent union and bargain in good faith. The coalition believes that "the decision of whether or not to have a union in the workplace should be left to the employers and employees after following the proper election procedures outlined by the National Labor Relations Act." While acknowledging that this bill would permit the successor employer to terminate an incumbent employee "for cause," the coalition observes that this is a higher standard than the at-will presumption and will "undoubtedly [lead to] unfair labor practice charges and civil litigation by the employee or incumbent union." In addition to its primary objection that employers should be free to hire their own workers, the opposition also highlights a number of other ways in which this bill is unfair or unreasonable. For example, the bill will force an employer to adhere to terms of a contract to which it is not a party; the bill will ultimately discourage investment in grocery establishments and jeopardize jobs because a business will not risk investing in a failing grocery store if it cannot select its own workforce; and, finally, there is no evidence that AB 359 preserves health and safety standards. Indeed, the coalition claims that some businesses might be failing because of repeated health and safety violations, and the successor would be forced to hire employees who were engaging in those violations. AB 359 Page 14 The California Grocers Association (CGA) opposes this bill for substantially the same reasons as those put forth by the coalition. REGISTERED SUPPORT / OPPOSITION: Support UFCW Western States Council (sponsor) American Federation of State, County and Municipal Employees California Labor Federation, AFL-CIO California Professional Firefighters California Rural Legal Assistance Foundation California School Employees California Teamsters Public Affairs Council Community Food and Justice Coalition AB 359 Page 15 Community Health Council, Inc. Consumer Attorneys of California Hunger Action LA Los Angeles Alliance for a New Economy Orange County Communities for Responsible Development Partnership for Working Families Professional Engineers in California Government Roots of Change SEIU California Tri-Counties Central Labor Council UFCW Golden State Local 8 UFCW Local 135 UFCW Local 324 AB 359 Page 16 UFCW Local 648 UFCW Local 770 UFCW Local 1167 UFCW Local 1428 UFCW Local 1442 Opposition Building Owners and Managers Association of California California Business Properties Association California Chamber of Commerce California Grocers Association California Retailers Association Camarillo Chamber of Commerce Chamber Alliance of Ventura and Santa Barbara Counties AB 359 Page 17 El Centro Chamber of Commerce and Visitors Bureau Family Business Association Fullerton Chamber of Commerce International Council of Shopping Centers NAIOP - Commercial Real Estate Development Association Orange Chamber of Commerce Oxnard Chamber of Commerce Rancho Cordova Chamber of Commerce San Jose Silicon Valley Chamber of Commerce Santa Maria Chamber of Commerce Visitors and Convention Bureau Southwest California Legislative Council Analysis Prepared by:Thomas Clark / JUD. / (916) 319-2334 AB 359 Page 18