BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: AB 465 Hearing Date: June 10,
2015
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|Author: |Roger Hernández |
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|Version: |April 30, 2015 |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Alma Perez-Schwab |
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Subject: Contracts against public policy.
KEY ISSUES
Should the Legislature prohibit a person from requiring another
to waive any legal right, penalty, remedy, forum, or procedure
for a violation of any provision of Labor Code as a condition of
employment?
Should any such waiver of a legal right, penalty, remedy, forum,
or procedure be knowing and voluntary and in writing to ensure
that workers are not being coerced into signing contracts to
waive their right to take violations to the Labor Commissioner
or to court and instead submit all claims to the employer's
arbitrator?
Should a person who violates these requirements, in addition to
any other remedies available, be liable for a civil penalty of
ten thousand dollars ($10,000) per individual for each violation
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as well as reasonable attorney's fees?
ANALYSIS
Existing law specifies that negotiation of terms and conditions
of labor should result from voluntary agreement between employer
and employees. Further, existing law grants employees full
freedom of association, self-organization, and designation of
representatives of his own choosing to negotiate the terms and
conditions of his employment. Any person or agent or officer
thereof who coerces or compels any person to enter into an
agreement, written or verbal, not to join or become a member of
any labor organization, as a condition of securing employment or
continuing in the employment of any such person is guilty of a
misdemeanor. (Labor Code §922-923)
Existing law establishes the California Arbitration Act which
provides that agreements to arbitrate shall be valid,
irrevocable, and enforceable, except such grounds as exist at
law or in equity for the revocation of any contract. (Code of
Civil Procedure section 1280 et seq.)
Existing federal law similarly establishes the Federal
Arbitration Act (FAA) which provides that agreements to
arbitrate shall be valid, irrevocable, and enforceable, except
such grounds as exist at law or in equity for the revocation of
any contract. (9 USC Section 1 et seq.)
This Bill would prohibit a person from requiring another person
to waive any legal right, penalty, remedy, forum, or procedure
for a violation of any provision of Labor Code, as a condition
of employment, including the right to file and pursue a civil
action or complaint with, or otherwise notify, the Labor
Commissioner, state agency, other public prosecutor, law
enforcement agency, or any court or other governmental entity.
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Additionally, this bill would:
1. Prohibit a person from threatening, retaliating, or
discriminating against another person for refusing to waive
any legal right, penalty, remedy, forum, or procedure for
violations.
2. Provide that any waiver of any legal right, penalty,
remedy, forum, or procedure for a violation of this code
shall be knowing and voluntary and in writing, and
expressly not made as a condition of employment.
3. Specify that any waiver of any legal right, penalty,
remedy, forum, or procedure for a violation of this code
that is required as a condition of employment shall be
deemed involuntary, unconscionable, against public policy,
and unenforceable.
4. Specify that any person seeking to enforce a waiver of
any legal right, penalty, remedy, forum, or procedure for a
violation of this code shall have the burden of proving
that the waiver was knowing and voluntary and not made as a
condition of employment.
5. Apply to any agreement to waive any legal right,
penalty, remedy, forum, or procedure for a violation of
this code, including an agreement to accept private
arbitration, entered into, altered, modified, renewed, or
extended on or after January 1, 2016.
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6. Provide that in addition to any other remedies
available, a person who violates this section is liable for
a civil penalty not exceeding ten thousand dollars
($10,000) per individual for each violation of this section
and reasonable attorney's fees.
7. Make related legislative findings and declarations
regarding rights under the Labor Code.
COMMENTS
1. Federal Preemption and Court Decisions on the Matter:
Arbitration is a form of alternative dispute resolution
outside of the judicial court system where a third party
reviews the evidence in the case and imposes a decision that
is legally binding on both sides and enforceable in the
courts. The Federal Arbitration Act (FAA) [9 U.S.C. Sec. 2],
originally enacted in 1925 and then reenacted and codified in
1947, states that: "[a] written provision in any maritime
transaction or a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction ? shall be valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract." In
other words, an arbitration agreement may only be invalidated
for the same reasons as other contracts. Additionally,
California's Arbitration Act reinforces the federal provisions
by clearly stating that agreements to arbitrate shall be
valid, irrevocable, and enforceable, except such grounds as
exist at law or in equity for the revocation of any contract.
In interpreting the FAA and the CAA, the U.S. Supreme Court
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has declared that by agreeing to arbitrate a statutory claim,
a party does not forgo the rights afforded by statute, it
simply submits to their resolution in an arbitral, rather than
a judicial forum. [Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20 (1991)]
In ensuring that any such agreement is legal and fair, the
court has stated that any lawfully mandated employment
arbitration agreement must (Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83):
1. Provide for neutral arbitrators;
2. Provide for more than minimal discovery;
3. Require a written award;
4. Provide for all of the types of relief that would
otherwise be available in court; and
5. Does not require employees to pay either
unreasonable costs or any arbitrators' fees or expenses
as a condition of access to the arbitration forum.
Additionally, also in the Armendariz case, the CA Supreme
Court stated that, "There is, of course, one major difference
between the FAA and the CAA. The former generally preempts
state legislation that would restrict the enforcement of
arbitration agreements ? while the CAA obviously does not
prevent our Legislature from selectively prohibiting
arbitration in certain areas." States are permitted to set
standards around fair contracting, as well as to protect
workers from retaliation to ensure that contracts are agreed
to voluntarily. In fact, in 2014, this legislature passed and
the governor signed AB 2617 (Weber), enacting these same
protections against mandatory waivers of civil rights
protections.
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2. Controversy over Arbitration Agreements:
The use of mandatory arbitration to settle employment claims
has steadily risen since the early 1990s. In 1991, the United
States Supreme Court decided Gilmer v. Interstate
Johnson/Lane, Corp., 500 U.S. 20 (1991), a case that involved
a suit brought by an employee alleging age discrimination by
the employer in which the employer moved to compel arbitration
on the basis of a pre-dispute agreement to arbitrate. In
Gilmer, the Court noted that parties may agree to arbitrate
statutory claims via an enforceable agreement, thereby
explicitly holding that pre-dispute agreements to arbitrate
were both legitimate and enforceable. However, some are
critical of arbitration agreements which are forced and
required as a condition of attaining or keeping employment.
Critics argue that forced waivers of workplace claims
eliminate important procedural guarantees of fairness and due
process that are hallmarks of our judicial system.
Below is a discussion of some of the criticisms and responses
to the use of arbitration:
Arbitration and its limitations: Supporters of mandatory
arbitration assert that it is a more efficient and less costly
manner of resolving legal disputes because they are able set
their own rules for presenting evidence, schedule proceedings
at their own convenience, and select the third party who will
decide their cases. However, critics have argued that private
arbitration agreements differ sharply from the rights and
obligations under the Labor Code and point to some of the
following limitations of existing law:
Existing law permits arbitrators to disregard the
law and/or the evidence in rendering their decisions.
Awards may be enforced by the court, even if they are
legally and factually erroneous. (Moncharsh v. Heily &
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Blase et al (1992) 3 Cal.4th 1.)
Existing law allows private arbitrators to issue
binding decisions that are legally enforceable but
essentially not reviewable by a court; there is no appeal
from an arbitrator's decision to a public court unless
the arbitration agreement expressly provides for judicial
review. (Crowell v. Downey Community Hospital Foundation
(2002) 95 Cal. App. 4th 730; Cable Connection, Inc. v.
DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
Existing law permits enforcement of private
arbitration agreements that preclude not only access to
the courts but also access to other governmental bodies
responsible for enforcing state laws, such as
administrative complaint procedures regarding employment
laws. (Sonic-Calabasas A, Inc. v. Moreno, 174 Cal. App.
4th 546 (2009), rev. granted, 99 Cal. Rptr. 3d 866
(2009).)
Existing law allows arbitrators to conduct
arbitrations without allowing for discovery, complying
with the rules of evidence, or explaining their decisions
in written opinions. (Code of Civil Procedure Sections
1283.1, 1282.2, 1283.4.)
Existing law permits arbitrations to be conducted in
private with no public scrutiny. [Ting v. AT&T (2002)
182 F.Supp. 2d 902 (N.D. Cal.), affirmed, 319 F.3d 1126
(9th Cir 2003)]
Existing law allows arbitrators substantial if not
absolute immunity from civil liability for acts relating
to their decisions, even in the case of bias, fraud,
corruption or other violation of law. (Baar v. Tigerman
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(1983) 140 Cal. App. 3d 979.)
The process of Arbitration is unregulated and biased: Critics
of private arbitration also argue that it is an unregulated
industry, which is often costly and unreceptive to consumers.
Consumer advocates view mandatory arbitration as putting
consumers and businesses employees on an uneven playing field
that creates an inclination by arbitrators to decide cases in
favor of businesses. Among other things, they state that:
One party (the employer) unilaterally picks its
preferred private arbitration company who writes the
rules by which the arbitration will be conducted.
The pre-selected arbitration company likewise
chooses the arbitrators who are made available for the
parties to select from.
Private arbitrators need not be judges nor are they
required to issue written opinions justifying their
decisions.
3. Need for this bill?
Arbitration can be a legitimate form of conflict resolution as
long as all parties involved are fully informed on how
arbitration works and agree to the terms voluntarily. Recent
trends show a practice of making mandatory arbitration a
condition of employment, a practice that could put the
employee, or potential employee, at a disadvantage. Their
options are either to sign the mandatory arbitration agreement
and risk any future outcome on a dispute or refuse to sign the
mandatory arbitration agreement and not take the job. In
recent years, the use of arbitration agreements in employment
cases has seen a dramatic rise. According to a March 2015
Wall Street Journal Article, titled More Companies Block
Employees from Filing Suits, "The percentage of companies
using arbitration clauses to preclude class-action claims from
employees soared to 43% last year from 16% in 2012." Because
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of this trend, there have been many discussions as to the
merits and benefits of using mandatory private arbitration as
an alternative forum to the civil justice system.
According to the Senate Judiciary Committee's analysis of AB
2617 (Weber) [legislation introduced last year and signed into
law by Governor Brown, which provides that a person shall not
require another person to waive any legal right, penalty,
remedy, forum, or procedure for violation of the Ralph Civil
Rights Act or the Bane Civil Rights Act as a condition of
entering into a contract for the provision of goods and
services]:
"While arbitration may be appropriate where parties
have relatively equal bargaining power and have
mutually agreed upon the forum, it arguably is not
appropriate when the contract is one of adhesion in
that a person has been forced to sign without the right
to negotiation. This is particularly true in instances
where an individual signs arbitration agreements that
encompass unwaivable statutory rights."
Existing state and federal law allows for these types of
agreements as long as they are fair and mutually agreed to.
This bill [AB 465] largely tracks the provisions found in AB
2617 which would prohibit a person from requiring another to
waive any legal right, penalty, remedy, forum, or procedure
[not just specifically to arbitration agreements] for a
violation of any provision of the Labor Code as a condition of
employment. It will require that these agreements be voluntary
and not required as a condition of employment. This bill
would also prohibit employers from threatening, retaliating,
or discriminating against workers for refusing to sign such a
waiver. While this bill does not completely bar waivers of
legal rights in these cases, the bill would ensure that all
waivers are made knowingly and voluntarily.
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4. Proponent Arguments :
According to the author and the sponsor, the goal of this bill
is to protect workers from being coerced into signing
contracts to waive the right to take labor violations to the
Labor Commissioner or to court and instead submit all claims
to the employer's arbitrator. The sponsors argue that there
are very few remedies available to most low-wage workers when
their rights are violated. They can file a claim with the
Labor Commissioner or they can find access to counsel through
a collective legal action. Unfortunately, some employers,
they argue, have found a way to circumvent these avenues by
requiring workers to sign waivers of the right to take claims
to the Labor Commissioner or to court and instead require them
to take any claims to the employer's private arbitrator.
The author argues that forced waivers (including mandatory
arbitration) of workplace claims are anathema to our public
justice system because they eliminate important procedural
guarantees of fairness and due process that are hallmarks of
our judicial system. They are also fundamentally inferior,
argues the author, and employers often require them as a
condition of employment, which means employees will be fired
or not hired if they do not give up their rights to resolve
employment claims in a court of law. Further, proponents claim
that employers craft the terms of the forced arbitration
provisions and typically select the arbitration services
providers for the dispute which creates a "repeat player
advantage" that favors employers utilizing the same provider
to resolve their employment disputes and disadvantages
individual employees who are one-time participants in the
process.
Proponents also argue that many times these clauses are buried
in the fine print of employment applications, employee
handbooks and manuals and as a result, it is nearly impossible
for an employee to evaluate and make an informed choice about
the appropriateness of a resolution mechanism prior to the
existence of an actual employment dispute. Additionally, as
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these become more common, they are increasingly seeing them in
low-wage workplaces where immigrant workers who may not even
speak the language used in the contract are required to sign
as a condition of employment.
For these reasons, proponents argue the importance of this
bill and state that it is designed to ensure that waivers of
important employment rights and procedures arising under
California law are made voluntarily and with the consent of
the employee. With regards to FAA preemption, proponents argue
that preemption would occur only in cases in which FAA
applies. They argue that the FAA does not apply to all cases;
for example, there are many cases that do not implicate
interstate commerce and to which, as a result, the FAA is
inapplicable. Further, they argue that there are other cases
in which the parties' choice of law clause is written in a way
that makes the FAA inapplicable. In either of these
circumstances, California law, including this bill, would
govern. Lastly, proponents state that nothing in the bill
undermines the ability of employers or workers to voluntarily
enter into arbitration agreements; the bill simply provides a
minimal level of protection to keep workers from being coerced
into waiving basic rights.
5. Opponent Arguments :
Opponents have raised concerns that the restrictions on
waivers in this bill may be preempted by federal law. They
believe that the FAA and the CAA evidence strong preference
for enforcement of arbitration agreements, so long as the
underlying contract is fair. According to opponents, the
prohibition sought with this bill directly conflicts with
rulings from both the CA Supreme Court and the U.S. Supreme
Court and, if signed into law, they believe it will be
challenged and ultimately found to be preempted as well. They
argue that this bill will only serve to drive up litigation
costs increasing individual claims, representative actions and
class action lawsuits against employers of all sizes until
such legislation can work through the judicial process to be
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challenged.
Opponents argue that adequate protections already exist for
mandatory, pre-dispute employee arbitration agreements and
cite the Armendariz v. Foundation Health CA Supreme Court case
which held that pre-dispute employment arbitration agreements
upon which employment is conditioned that encompass unwaivable
statutory rights are valid and enforceable as long as the
following contractual protections are included: (1) provide
for a neutral arbitrator; (2) no limitation of remedies; (3)
adequate opportunity to conduct discovery; (4) written
arbitration award and judicial review of the award; and, (5)
no requirement for the employee to pay unreasonable costs that
they would not incur in litigation or arbitration. They argue
that arbitration agreements that have not included these
mandatory provisions have regularly been struck down as
unconscionable.
Additionally, opponents contend that arbitration provides an
effective and efficient means to resolve employment-related
claims. They cite data from the U.S. District Court Judicial
Caseload Profiler which shows that there were 29,312 civil
cases filed in California in 2014. As of June 2014,
approximately 2,132 cases had been pending in federal court in
California for over three years and the median time from
filing of a civil complaint to trial in Northern California
was 31 months. Comparatively, they note, a 2003 article in the
New York University School of Law legal journal regarding
employment arbitration found that arbitration was resolved
within a year while litigation usually lasted over two years.
Opponents also cite a 2006 study by Mark Fellows, Legal
Counsel at the National Arbitration Forum, titled "The Same
Result as in Court, More Efficiently: Comparing Arbitration
and Court Litigation Outcomes," which concluded that consumers
and employees actually fare better in arbitration than in
court. Fellows specifically analyzed data from California and
found that consumers prevail in arbitration 65.5% of the time,
as compared to 61% of the time in court.
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They argue that arbitration is a valuable alternative method
to resolve disputes in an efficient manner and should be
encouraged. Instead, they argue that this bill will force
more employment disputes into the already overburdened
judicial system, thereby delaying any recovery of potential
wages for an employee even longer by essentially banning any
predispute, mandatory employment arbitration agreements.
6. Double Referral :
This bill has been double referred to this Committee and the
Senate Judiciary Committee. Should the bill be approved
today, it will be sent to Senate Judiciary for a hearing.
7. Prior Legislation :
AB 2617 (Weber) of 2014: Chaptered
This bill largely tracks the provisions of AB 2617 (Weber),
legislation introduced last year and signed into law by
Governor Brown, which provides that a person shall not require
another person to waive any legal right, penalty, remedy,
forum, or procedure for violation of the Ralph Civil Rights
Act or the Bane Civil Rights Act as a condition of entering
into a contract for the provision of goods and services.
AB 1715 (Assembly Judiciary Committee) of 2003: Vetoed
AB 1715 would have, among other things, made it an unlawful
employment practice for a covered employer to require an
employee to waive any rights or procedures under the Fair
Employment and Housing Act (FEHA) as a condition of
employment. This bill was vetoed by Governor Gray Davis.
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SB 1538 (Burton) of 2002: Vetoed
SB 1538 would have, among other things, made it an unlawful
employment practice to require an employee to waive any rights
or procedures under FEHA, and would have made any pre-dispute
arbitration agreement between an employer and employee that
violated this prohibition unenforceable. This bill was vetoed
by Governor Gray Davis.
SUPPORT
California Labor Federation, AFL-CIO (Sponsor)
American Civil Liberties Union of CA
American Federation of State, County and Municipal Employees
CA Conference Board of the Amalgamated Transit Union
CA Conference of Machinists
California Employment Lawyers Association
California Immigrant Policy Center
California Nurses Association
California Professional Firefighters
California Rural Legal Assistance Foundation, Inc.
California School Employees Association
California State Council of Laborers
California State Firefighters' Association
California Teamsters Public Affairs Council
CLEAN Carwash Campaign
Congress of California Seniors
Consumer Attorneys of California
Consumer Federation of California
Consumers for Auto Reliability and Safety
Engineers and Scientists of CA, IFPTE Local 20
Equal Rights Advocates
International Association of Boilermakers
International Association of Heat and Frost Insulators and
Allied Workers
International Association of Iron Workers
International Association of Sheet Metal Workers
International Brotherhood of Electrical Workers
International Longshore and Warehouse Union
International Union of Operating Engineers
Maintenance Cooperation Trust Fund
Painters and Allied Trades International Union
Professional and Technical Engineers, IFPTE Local 21
Service Employees International Union, California
State Building and Construction Trades Council
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The Wage Justice Center
United Association Union of Plumbers, Fitters, Welders, &
Service techs
United Union of Roofers and Allied Workers
UNITE-HERE
Utility Workers Union of America
OPPOSITION
Air Conditioning Trade Association
Associated Builders and Contractors of California
Associated General Contractors
Association of California Insurance Companies
California Apartment Association
California Association for Health Services at Home
California Association of Health Facilities
California Association of Realtors
California Bankers Association
California Building Industry Association
California Business Properties Association
California Citizens Against Lawsuit Abuse
California Chamber of Commerce
California Employment Law Council
California Farm Bureau Federation
California Grocers Association
California Hospital Association
California Hotel and Lodging Association
California League of Food Processors
California Manufacturers and Technology Association
California New Car Dealers Association
California Newspaper Publishers Association
California Retailers Association
California Trucking Association
Civil Justice Association of California
National Federation of Independent Business
Oxnard Chamber of Commerce
Personal Insurance Association of California
Rancho Cordova Chamber of Commerce
Redondo Beach Chamber of Commerce & Visitors Bureau
San Diego Regional Chamber of Commerce
San Jose Silicon Valley Chamber of Commerce
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
Torrance Area Chamber of Commerce
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West Coast Lumber & Building Materials Association
Western Electrical Contractors Association
Western Growers Association
Wine Institute
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