BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 465 (Roger Hernández)
Version: April 30, 2015
Hearing Date: June 23, 2015
Fiscal: No
Urgency: No
TMW
SUBJECT
Contracts against public policy
DESCRIPTION
This bill would prohibit a person from threatening, retaliating,
or discriminating against another person on the basis that the
other person refuses to waive any legal right, penalty, remedy,
forum, or procedure for a violation of the Labor Code, 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, and would require any waiver to be knowing
and voluntary and in writing, and expressly not made as a
condition of employment.
BACKGROUND
Arbitration is an alternative method of resolving disputes in
which two parties present their individual sides of a complaint
to an arbitrator or panel of arbitrators. The arbitrator
decides the rules, weighs the facts and arguments of both
parties, and then decides the dispute. Arbitration may be
voluntary or mandatory.
In voluntary arbitration, both sides in the dispute voluntarily
agree to submit their disagreement to arbitration after it
arises, and they have an opportunity to investigate their best
options for resolving their claim. In mandatory arbitration, a
company can require a consumer or employee to submit any dispute
that may arise to binding arbitration as a condition of
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employment or buying a product or service. The employee or
consumer is required to waive his or her right to sue, to
participate in a class action lawsuit, or to appeal. The
arbitrator's decision is binding, and the results are not
public.
Since Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, the
controversy regarding the merits and flaws of mandatory private
arbitration has raged unabated in the Legislature, with at least
one or more measure each session attempting to address concerns
about the impact of mandatory arbitration.
In Moncharsh, the court held that a private arbitrator's award
may be enforced by a court even if the decision is legally and
factually erroneous. (See also Crowell v. Downey Community
Hospital Foundation (2002) 95 Cal.App.4th 730 (allows private
arbitrators to issue binding decisions that are legally
enforceable but essentially unreviewable by a court even if the
arbitration agreement expressly provides for judicial review).)
Thus, under Moncharsh, a consumer forced into arbitration
instead of court will not only lose his or her right to a jury
trial, he or she may also lose his or her right to justice
because of the lack of ability to appeal an erroneous
arbitration award that disregarded the law or the evidence.
In its notice Number 915.002, dated July 10, 1997, the United
States Equal Employment Opportunity Commission (EEOC) announced
its policy position against agreements that require binding
arbitration of discrimination claims as a condition of
employment. In that notice, the EEOC stated: "The use of
unilaterally imposed agreements mandating binding arbitration of
employment discrimination disputes as a condition of employment
harms both the individual civil rights claimant and the public
interest in eradicating discrimination. Those whom the law
seeks to regulate should not be permitted to exempt themselves
from federal enforcement of civil rights laws. Nor should they
be permitted to deprive civil rights claimants of the choice to
vindicate their statutory rights in the courts."
On January 15, 2002, the United States Supreme Court, in Equal
Opportunity Commission v. Waffle House, Inc. (2002) 122 S.Ct.
754, held that an agreement between an employer and an employee
to arbitrate employment-related disputes did not bar the EEOC
from pursuing victim-specific relief in a judicial proceeding
because the EEOC was not a party to the arbitration agreement.
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In the 20 years since the Moncharsh decision, more and more
employers are requiring workers to sign employment documents,
before, during, or upon termination of employment, that contain
inconspicuous terms, including mandatory arbitration clauses,
waiving or releasing liability of the employer for any and all
employment claims. In exchange for signing these documents, the
employer may offer bonuses, raises, or continued employment to
those workers. Current law invalidates waivers of employment
rights under Labor Code statutes that are enacted as a matter of
public policy, but there is no express limitation on the ability
to waive claims for penalties, remedies, forum, or procedures
under the Labor Code.
To address that issue, this bill contains similar limitations on
waivers of Fair Employment and Housing Act (FEHA) claims as were
proposed by AB 1715 (Committee on Judiciary, 2003). That bill
would have provided that any waiver of rights or procedures
under FEHA must be knowing, voluntary, and not made as a
condition of employment or continued employment. AB 1715 also
would have invalidated arbitration agreements between employers
and employees that relate to employment practices covered by
FEHA that are required as a condition of employment or continued
employment. AB 1715 was vetoed because Governor Davis was
concerned about adversely affecting the ability of California
business to cost efficiently resolve disputes. Similar
limitations on waivers of FEHA claims were also contained in SB
1407 (Jackson, 2014), which died on the Assembly Floor Inactive
File.
This bill also contains provisions substantially similar to AB
2617 (Weber, Chapter 910, Statutes of 2014), which prohibited
waivers of any legal right, penalty, remedy, forum, or procedure
for a violation of the Ralph Civil Rights Act and the Tom Bane
Civil Rights Act. Similarly, this bill would impose specified
restrictions on the future contractual waivers of rights under
the Labor Code.
This bill was heard by the Senate Labor and Industrial Relations
Committee on June 10, 2015, and was approved by a vote of 4-1.
CHANGES TO EXISTING LAW
Existing law generally regulates the formation of contracts and
provides that anyone may waive the advantage of a law intended
solely for his benefit but specifies that a law established for
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a public reason cannot be waived by a private agreement. (Civ.
Code Sec. 3513.)
Existing law authorizes a court, if it finds as a matter of law
that the contract or any clause of the contract was
unconscionable at the time it was made, to refuse to enforce the
contract, or it may enforce the remainder of the contract
without the unconscionable clause, or it may so limit the
application of any unconscionable clause as to avoid any
unconscionable result. (Civ. Code Sec. 1670.5(a).)
Existing law provides that a general release does not extend to
claims which the creditor does not know or suspect to exist in
his or her favor at the time of executing the release, which if
known by him or her must have materially affected his or her
settlement with the debtor. (Civ. Code Sec. 1542.)
Existing law , the California Arbitration Act, generally provides
that written agreements to submit to arbitration an existing
controversy or a controversy thereafter arising is valid,
enforceable and irrevocable, except upon such grounds as exist
for the revocation of any contract. (Code Civ. Proc. Sec.
1281.)
Existing law provides that no statutory right provided for
general occupations under Article 1, Sections 200 through 244 of
the Labor Code, can in any way be contravened or set aside by a
private agreement, whether written, oral, or implied. (Lab.
Code Sec. 219.)
Existing law prohibits an employer from requiring the execution
of a release of a claim or right on account of wages due, or to
become due, or made as an advance on wages to be earned, unless
payment of those wages has been made. A release made in
violation of this provision shall be null and void and a
violation of this provision by the employer is a misdemeanor.
(Lab. Code Sec. 206.5.)
Existing law provides that any contract or agreement, express or
implied, made by any employee to waive the benefits of the
obligations of the employer provided under Article 2, Sections
2800 through 2810.5, of the Labor Code, or any part thereof, is
null and void, but those provisions do not deprive any employee
or his personal representative of any right or remedy to which
he is entitled under the laws of this State. (Lab. Code Sec.
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2804.)
Existing law prohibits any contract, rule, or regulation from
exempting the employer from liability for worker's compensation
and insurance claims provided under Division 4, Statutes 3200
through 6002 of the Labor Code, but those provisions do not
impair the rights of the parties interested to compromise any
liability which is claimed to exist on account of injury or
death, or confer upon the dependents of any injured employee any
interest which the employee may not release by compromise or for
which he (or her), or his (or her) estate in the event of such
compromise by him (or her) accountable to dependents. (Lab.
Code Sec. 5000.) Further, no release of liability or compromise
agreement is valid unless it is approved by the Workers'
Compensation Appeals Board or referee. (Lab. Code Sec. 5001.)
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 the 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.
This bill would prohibit a person from threatening, retaliating,
or discriminating against another person on the basis that the
other person refuses to waive any legal right, penalty, remedy,
forum, or procedure for a violation of the Labor Code, 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.
This bill would require any waiver of any legal right, penalty,
remedy, forum, or procedure for a violation of the Labor Code,
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 to be knowing and
voluntary and in writing, and expressly not made as a condition
of employment.
This bill would provide that any waiver of any legal right,
penalty, remedy, forum, or procedure for a violation of the
Labor Code that is required as a condition of employment shall
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be deemed involuntary, unconscionable, against public policy,
and unenforceable. This bill would also specify that would not
affect the enforceability or validity of any other provision of
the contract.
This bill would provide that any person who seeks to enforce a
waiver of any legal right, penalty, remedy, forum, or procedure
for a violation of the Labor Code would have the burden of
proving that the waiver was knowing and voluntary and not made
as a condition of employment.
This bill would apply to any agreement to waive any legal right,
penalty, remedy, forum, or procedure for a violation of the
Labor Code, including an agreement to accept private
arbitration, entered into, altered, modified, renewed, or
extended on or after January 1, 2016.
This bill , in addition to any other remedies available, would
provide that a person who violates this section is liable for a
civil penalty not exceeding $10,000 per individual for each
violation and reasonable attorney's fees.
This bill would make various related legislative findings and
declarations as follows:
it is the policy of the State of California to ensure that all
persons have the full benefit of the rights, penalties,
remedies, forums, and procedures established in the Labor
Code, and that individuals shall not be deprived of those
rights, penalties, remedies, forums, or procedures through the
use of involuntary or coerced waivers; and
it is the purpose of this act to ensure that a contract to
waive any of the rights, penalties, remedies, forums, or
procedures under the Labor Code, including any provision that
has the effect of limiting the full application or enforcement
of any right, remedy, forum, or procedure available under the
Labor Code, is a matter of voluntary consent, not coercion.
COMMENT
1. Stated need for the bill
The author writes:
Forced waivers (including mandatory arbitration) of workplace
claims are anathema to our public justice system because they
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eliminate important procedural guarantees of fairness and due
process that are hallmarks of our judicial system.
AB 465 will ensure that waivers of important employment rights
and procedures arising under California law are made
voluntarily and with the consent of the employee.
The California Labor Federation, AFL-CIO (CLF), sponsor, writes:
California's economy increasingly depends on low-wage workers.
Sixty percent of California workers earn less than $15 per
hour, locking their families into poverty. Nearly all of
these workers are at will employees, meaning that they have no
guarantee of work and can be terminated any time without
cause. In addition, one-third of California workers are
immigrants and one in ten are undocumented.
A recent study by the National Employment Law Project,
entitled "Workers' Rights on ICE: How Immigration Reform can
Stop Retaliation and Advance Labor Rights," found widespread
and pervasive abuses against immigrant workers. [Seventy-six
percent] of undocumented workers surveyed worked off the clock
without pay; 85 [percent] did not receive overtime.
[Twenty-nine percent] of California workers killed in
industrial accidents are immigrants.
Wage theft and other labor abuses are particularly egregious
for immigrant workers, but are widespread across industries
for so many low-wage workers. Workers are often required to
work off the clock, are paid only in tips, or are
misclassified as independent contractors and not even paid for
all the hours worked. Pervasive labor law violations serve to
exacerbate inequality and prevent workers from ever getting
ahead.
There are very few remedies available to most low-wage workers
when their rights are violated. They can file a claim to the
Labor Commissioner or they can find access to counsel through
a collective legal action. Yet employers have found a way to
circumvent these avenues. Increasingly companies are
requiring workers to sign waivers of the right to take claims
to the Labor Commissioner or to court and instead requiring
them to take any claims to the employer's private arbitrator.
?
AB 465 will provide some basic protections to these workers.
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It will require that these agreements be voluntary and not
required as a condition of employment. It will require that a
waiver of rights be voluntary. Lastly, it will prohibit
employers from threatening, retaliating, or discriminating
against workers for refusing to sign such a waiver. These are
core tenets of contract law and are consistent with the
Supreme Court's direction that such contracts should not be
entered into under coercion.
2. Prohibiting waivers of employment rights, penalties, remedies,
forum, and procedures
This bill would prohibit a waiver of any legal right, penalty,
remedy, forum, or procedure under the Labor Code unless the
waiver by the claimant was knowing and voluntary. This bill
would further provide that no person shall threaten, retaliate,
or discriminate against another person on the basis that the
person refuses to waive his or her rights. Any waiver of legal
rights, penalty, remedy, forum, or procedure for a violation of
the Labor Code, including the right to file and pursue a civil
action or complaint with, or otherwise notify, the Labor
Commissioner, or any court or other governmental entity, that is
required as a condition of employment would be deemed to be
involuntary, unconscionable, against public policy, and
unenforceable.
This bill would also require any person seeking to enforce a
waiver of rights under this bill would have the burden of
proving that the waiver was made knowingly and voluntarily, and
not made as a condition of employment. This bill would apply to
any agreement, including an agreement to accept mandatory
private arbitration, entered into, altered, modified, renewed,
or extended on or after January 1, 2016.
According to CLF, "[t]he use of mandatory arbitration agreements
is increasing dramatically. A recent article in the Wall Street
Journal reported that the number of companies that use such
agreements has risen sharply from 16 [percent] in 2012 to 43
[percent] in 2014. As they become more common, we 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. From port
truck drivers to retail workers to car wash workers to janitors,
workers across the low-wage economy are being required to sign
away their right to engage in collect[ive] action or even just
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rely on state agencies for help without even knowing they have
done so."
Consumer Attorneys of California (CAOC), in support, provide the
following examples of common waivers that workers are forced to
sign to get or keep a job:
BY SIGNING THIS AGREEMENT, THE PARTIES AGREE THAT EACH
MAY BRING CLAIMS AGAINST THE OTHER ONLY IN THEIR INDIVIDUAL
CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY
PURPORTED CLASS AND/OR COLLECTIVE PROCEEDING.
FURTHERMORE, BY SIGNING THIS AGREEMENT, THE PARTIES AGREE THAT
EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN THEIR INDIVIDUAL
CAPACITY AND NOT IN ANY REPRESENATIVE PROCEEDING UNDER ANY
PRIVATE ATTORNEY GENERAL STATUTE ("PAGA CLAIM"), UNLESS
APPLICABLE LAW REQUIRES OTHERWISE. IF THE PRECEDING SENTENCE IS
DETERMINED TO BE UNENFORCEABLE, THEN THE PAGA CLAIM SHALL BE
LITIGATED IN A CIVIL COURT OF COMPETENT JURISDICTION AND ALL
REMAINING CLAIMS WILL PROCEED IN ARBITRATION.
Employee agrees that any dispute that may arise between
employee and employer relating to the termination of your
employment, including, without limitation: (a) any
claim(s) based on common law, contract, state or federal
statutes, Title VII of the Civil Rights Act of 1964, as
amended, and the Age Discrimination in Employment Act; (b)
any claim under the California Fair Employment and Housing
Act, any statute or provision relating to employment
discrimination and/or employment rights, the federal or any
state constitution and/or public; (c) any claim that you
were not paid properly, including, without limitation, any
claim based on contract, or any claim arising under the
Fair Labor Standards Act, the California Labor Code, or any
state or federal wage and hour law; (d) any claim alleging
a violation of California Business & Professions Code
section 17200, et seq., or any similar state or federal
statute; and (e) any claim the employer may have against
you arising out of the employment relationship shall be
submitted to final and binding arbitration before a neutral
arbitrator.
CAOC argues that these examples of arbitration clauses,
containing dense legal jargon, are confusing, difficult for many
employees to understand, assuming the employee identifies these
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clauses within the multi-page employment contract, and may not
be written in the first language spoken by the employee, but are
required for employees to agree to in order to be hired or
maintain their employment. CAOC further notes that employers
often place these waivers in employee handbooks and present them
to the employee after the employment commences, later claiming
the employee is bound by a contract in which the employee waived
his or her legal rights. This bill seeks to prohibit an
employee from being threatened, retaliated, or discriminated
against by an employer for the employee's refusal to waive his
or her legal rights, remedies, and procedures otherwise provided
under the Labor Code, unless that waiver is entered into by the
employee knowing and voluntary and in writing, and not made as a
condition of employment.
3. Federal Arbitration Act
The Federal Arbitration Act (FAA) (9 U.S.C. Sec. 2) provides
that an arbitration agreement shall be valid, irrevocable, and
enforceable, except on such grounds as exist at law or in equity
for the revocation of any contract. Opponents have raised
concerns that the restrictions on waivers in this bill may be
preempted by federal law. In a coalition letter, they write:
The [FAA] and the California Arbitration Act (CAA) evidence a
strong preference for enforcement of arbitration agreements,
so long as the underlying contract is fair. [See Armendariz
v. Foundation Health Psychcare Services, Inc. 24 Cal.4th 83
(2000) ("California law, like federal law, favors enforcement
of valid arbitration agreements."); AT&T Mobility LLC v.
Concepcion, 131 S.Ct. 1740 (2011) (holding that the FAA
prohibits states from conditioning the enforceability of an
arbitration agreement on the availability of class wide
arbitration procedures, as such a requirement would be
inconsistent with the intent of the FAA); and Sonic-Calabasas
A, Inc. v. Moreno, 57 Cal.4th 1109 (2013) (agreeing that FAA
preempts state law that seeks to limit the waiver of
administrative hearing in an arbitration agreement, as it
interferes with arbitration goals of providing "'streamlined
proceedings and expeditious results'").]
AB 465 directly conflicts with these prior and recent rulings
from both the California and United States Supreme Courts,
which have consistently stated any state law that interferes
with the [FAA] is preempted. . . . However, the time, cost
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and uncertainty created for all California employers while any
legal challenge to AB 465 is pending in the judicial system
would be detrimental to businesses and unnecessary.
In response, the author argues that "[i]n order to be valid,
even under federal law, [arbitration] agreements must be
voluntary and entered into with the consent of the employee.
'Arbitration is favored in this state as a voluntary means of
resolving disputes, and this voluntariness has been its bedrock
justification.' Armendariz, 24 Cal. 4th 83, 115 [emphasis
added]." The author further states that this bill simply allows
an employee to make the choice to enter into an arbitration
agreement knowingly and voluntarily.
Staff notes that this bill generally applies to all waivers of
legal rights, penalties, remedies, forums, or procedures under
the Labor Code, not just specifically to arbitration agreements.
This bill also relies on the general contract law principle of
unconscionability to invalidate waivers that are required as a
condition of employment. Unconscionability is routinely applied
by the courts to invalidate contracts, including arbitration
agreements. It would be difficult to imagine a scenario where a
required waiver of rights, especially those established for a
public policy, under the Labor Code as a condition of employment
is not unconscionable. Finally, this bill does not completely
bar all waivers of legal rights under the Labor Code, or
agreements to arbitrate such claims. Instead, this bill
requires that waivers be knowing and voluntary.
4. Controversy surrounding mandatory arbitration
In recent years, there have been frequent discussions as to the
merits and benefits of mandatory private arbitration as an
alternative forum to the civil justice system. Supporters of
mandatory arbitration generally assert that it is a more
efficient and less costly manner of resolving legal disputes
because they are able to limit discovery, 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 of private arbitration contend that it
is an unregulated industry, which is often costly and
unreceptive to consumers.
Consumer advocates view mandatory arbitration as putting
consumers and businesses on an uneven playing field that creates
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an inclination by arbitrators to decide cases in favor of
businesses. They further view arbitration as an expensive
process which also puts consumers at a disadvantage by imposing
procedural limitations on their ability to pursue their legal
claims. This is especially true in cases where the business has
pre-selected the company in the contract who will arbitrate the
claim. Critics contend that arbitrators have far less incentive
to be fair to both sides when they owe their engagement to the
business that will repeatedly appear before them, unlike the
consumer party who did not choose the arbitration company and is
not likely to be the source of future work for the arbitrator.
These concerns are compounded by the fact that there are little,
if any, regulations or legal standards imposed on arbitrators or
their decisions. Regardless of the level or type of mistake, or
even misconduct, by the arbitrator, the grounds on which a court
will allow judicial review of an arbitrator's decision are
extremely narrow. (See Moncharsh v. Heily & Blase (1992) 3
Cal.4th 1 (holding that a court is not permitted to vacate an
arbitration award based on errors of law by the arbitrator,
except for certain narrow exceptions).) Courts have recently
begun to make some exceptions to Moncharsh, and allowed for more
expanded judicial review of arbitral awards in certain
circumstances. (See Pearson Dental Supplies Inc. v. Superior
Court (2010) 48 Cal.4th 665 (holding that error of law was
sufficient grounds to vacate the arbitral award because an
arbitrator whose legal error barred an employee subject to a
mandatory arbitration agreement from obtaining a hearing on the
merits of a discrimination claim under the Fair Employment and
Housing Act (or other claims based on unwaivable statutory
rights) exceeded his or her legal powers).) Although the
Pearson decision does provide some recourse for individuals who
were compelled to arbitrate claims of unwaivable statutory
rights, and effectively denied a hearing on the merits for their
claim, the general rule providing for limited judicial review of
arbitral awards is still controlling.
5. Mandatory arbitration may infringe upon meaningful enforcement
of unwaivable labor rights laws
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 that a person has been forced to sign without
the right to negotiate. This is particularly true in instances
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where an individual signs arbitration agreements that encompass
unwaivable statutory rights.
While a party is free to waive the advantage of a law intended
solely for his or her benefit, a law established for a public
reason cannot be waived by private agreement. (Civ. Code Sec.
3513.) The Labor Code provides multiple statutes prohibiting
agreements to waive employment rights and claims (i.e., Lab.
Code Secs. 206.5 and 219 (payment of wages), 1194 (payment of
minimum wages), 2804 (obligations of employer), 5000 and 5001
(workers' compensation and insurance benefits)), and provides
for enforcement by the Labor Commissioner, in addition to
various private rights of action for equitable relief, civil
penalties, and damages. These statutes reflect their purpose in
not only vindicating individual rights, but also to provide a
mechanism to redress the harms that labor violations causes to
the larger community.
As discussed above, there are many problematic aspects of
private arbitration which arguably indicates that a waiver of
the right to have employment claims resolved by the court does
essentially equate with a complete waiver of rights. For
example, in Moncharsh v. Heily & Blasé (1992) 2 Cal.4th 1,
10-11, the court stated that "[a]rbitrators, unless specifically
required to act in conformity with rules of law, may base their
decisions upon broad principles of justice and equity, and in
doing so may expressly or impliedly reject a claim that a party
might successfully have asserted in a judicial action." Thus,
there are ample policy reasons for which to conclude that claims
rooted in unwaivable employment rights are not appropriate for
private arbitration, particularly mandatory private arbitration.
However, this bill would provide that an individual may
knowingly and voluntarily waive a legal right, remedy, forum, or
procedure for violations of the Acts, which could arguably be
interpreted as authorizing a complete waiver of all rights.
This would be contrary to the longstanding public policy that
civil rights established by the state for a public reason cannot
be contravened by a private agreement. (Civ. Code Sec. 3513;
see also Civ. Code Sec. 1668 (stating that all contracts which
have for their object, directly or indirectly, to exempt anyone
from responsibility for his own fraud, or willful injury to the
person or property of another, or violation of law, whether
willful or negligent, are against the policy of the law) and
Civ. Code Sec. 1953 (stating that any provision of a lease or
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rental agreement of a dwelling by which the lessee agrees to
modify or waive specified rights shall be void as contrary to
public policy).)
As it is not the author's intent to allow individuals to
completely waive otherwise unwaivable rights by contract, this
bill should be amended to also provide that its provisions shall
not be construed to authorize the knowing and voluntary waiver
of such rights that currently are unwaivable.
6. Other opposition arguments
The opposition coalition to this bill raises not only federal
preemption under the California and Federal Arbitration Acts
(see Comment 3 above), but it also makes several other
arguments. The opposition argues that California contract law
already requires all employment arbitration agreements to be
freely and mutually executed. The opposition contends that:
"[A]n arbitration agreement cannot be enforced if the employee
has not freely consented to the agreement. However, simply
because an arbitration agreement is an adhesion contract, which
is made as a condition of employment, does not mean the employee
has not freely consented. Numerous decisions issued by the
California and United States Supreme Courts have determined
that, like other adhesion contracts that are integrated into
consumer product sales, an employee freely consents to the
agreement." The opposition cites to Lagatree v. Luce, Forward,
Hamilton & Scripps (1999) 74 Cal.App.4th 1105; see also
Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
24 Cal.4th 83; AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct.
1740; Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109.
The opposition argues that courts already provide adequate
protection for arbitration agreements. For example, the
coalition cites Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, where "the California
Supreme Court held that predispute 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 fees." The
opposition also cites several other recent cases, including
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Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, where "a
court deemed an independent contractor arbitration agreement
unconscionable where it expanded the right to attorney's fees
for [Fair Employment and Housing Act (FEHA)] violations to the
company, and reduced the time to file a FEHA claim from one year
to 180 days;" Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th
771, where the court denied arbitration "where terms that
required a California independent contractor to pay upfront
costs, arbitrate in New York, and waived statutory rights was
substantively unconscionable;" and Trivedi v. Curexo Technology
Corp. (2010) 189 Cal.App.4th 387, where the court refused "to
enforce [an] arbitration agreement that provided a prevailing
party an attorney's fee award without imposing limitation of
recovery under FEHA."
The opposition also contends that arbitration does not favor
employers under the "repeat player" theory as claimed by
proponents of this bill. According to the opposition:
First, employers are mandated to pay for all arbitration
costs. Specifically, the California Supreme Court stated in
Armendariz, supra, that an employment arbitration agreement
could not require an employee to pay for any fees or costs in
arbitration that the employee would not have to pay for in
court (i.e., the cost of an arbitrator). Accordingly, the
employer has no choice but to pay for the arbitration.
Second, although an employer may have a contract with one of
the major arbitrator providers, such as AAA or JAMS, the
employer does not necessarily have a specific contract or
financial relationship with the arbitrator who decides the
case. Moreover, California law requires an arbitrator to
disclose to all parties prior to the arbitration the following
information: (1) familial relationships with any of the
parties or lawyers involved; (2) personal relationships with
any of the parties or lawyers involved; (3) service as an
arbitrator for one of the parties or attorneys involved within
the last five years, including all of the case information and
the results of each case; (4) any other professional
relationships with the parties or attorneys involved in the
case; (5) any financial relationships with the parties or
attorneys involved in the case; and, (6) any other matter
which might create doubt as to whether the arbitrator can be
impartial.
This obligation to disclose is ongoing and an arbitrator has
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an ethical duty to disqualify himself or herself at any time
during the arbitration if impartiality is compromised.
Third, an employee has an equal opportunity to pick the
arbitrator from a panel of proposed arbitrators. For example,
under AAA's rules of employment arbitration, Rule 12, it sets
forth the manner in which an arbitrator is determined,
including that both sides receive an identical list of
proposed arbitrators which they can select from for the
forthcoming arbitration.
Fourth, the Supreme Court specifically mandated that an
employment arbitration agreement provide for a "neutral
arbitrator." Accordingly, an agreement that did anything to
jeopardize this requirement would be unenforceable.
Fifth, as identified in the study by Eisenberg and Hill
referenced below, employees have a higher success rate in
arbitration than court, so any "repeat player" favoritism is
not supported by the actual results.
The opposition argues that arbitration provides an effective and
efficient means to resolve claims, compared to the courts:
According to the U.S. District Court Judicial Caseload
Profiler, 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, a 2003
article in the New York University School of Law legal journal
authorized by Theodore Eisenberg and Elizabeth Hill regarding
employment arbitration found that arbitration was resolved
within a year while litigation usually lasted over two years.
The opposition cites a study that analyzed data from California
that "found that consumers prevail in arbitration 65.5 [percent]
of the time, as compared to 61 [percent] of the time in court.
[Further, in] their article, Eisenberg and Hill also found that,
aside from civil rights disputes, higher paid employees' success
rate in arbitration was basically the same as in litigation,
with equivalent awards." The opposition also notes a 2011
presentation to the George Washington University Law School in
which the presenter "agreed that the national data and evidence
available demonstrate that consumers do the same if not better
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in arbitration than litigation, as one of the largest
arbitration providers documented at least 45 [percent] of
consumer arbitrations result in a damages award, while over 70
[percent] of consumer-initiated securities arbitrations result
in a recovery to the consumer." The opposition also notes
findings in a 2013 Heritage Foundation report that "supported
these findings by Fellows, concluding that '[a]rbitration is
generally faster, cheaper, and more effective than the
litigation system. It is not affected by cutbacks in judicial
budgets or the increases in court dockets that significantly
delay justice.'"
The opposition asserts that, although proponents suggest that AB
465 is the same as AB 2617, that comparison is flawed because AB
2617 only applied to arbitration agreements for the resolution
of hate crimes under the Unruh Civil Rights Act, while "AB 465
seeks to ban all pre-dispute arbitration agreements made as a
condition of employment for any and all claims arising during
the employment relationship. This proposed ban includes all
claims under the Labor Code, Fair Employment and Housing Act,
tort claims, Unfair Competition claims, Misappropriation of
Trade Secrets, Title VII, and the Fair Labor and Standards Act."
The opposition also argues that this bill would send low-wage
employees with employment disputes into the overburdened and
underfunded judicial system, even though "[a]rbitration is a
valuable alternative method to resolve disputes in an efficient
manner and should be encouraged." The opposition further argues
that this bill would create a worse litigation environment and
lack of job creation, noting California's second-place ranking
on a tort reform association's watch list for worst litigation
environment, and claim that this bill will drive up employer's
litigation costs.
In response to these arguments, the sponsor states that this
bill is modeled on AB 2617 (Weber), passed in 2014 and signed
into law, which provided the same protections for these types of
waivers involving civil rights. The sponsor further notes that
nothing in this bill undermines the ability of employers or
workers to voluntarily enter into arbitration agreements, and
only applies to a legal right, penalty, remedy, forum, or
procedure for a violation of the Labor Code. The sponsor states
that this bill simply provides a minimal level of protection to
keep workers from being coerced into waiving basic rights.
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Support : American Civil Liberties Union of California; American
Federation of State, County and Municipal Employees, AFL-CIO;
California Conference Board of the Amalgamated Transit Union;
California 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, AFL-CIO;
California State Council of Laborers; California State
Firefighters' Association; California Teachers 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
California, IFPTE Local 20, AFL-CIO; Equal Rights Advocates;
International Association of Bridge, Structural, Ornamental and
Reinforcing Iron Workers; International Association of Heat and
Frost Insulators and Allied Workers; International Association
of Sheet Metal Workers; International Brotherhood of
Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and
Helpers; International Brotherhood of Electrical Workers;
International Longshore and Warehouse Union; International Union
of Operating Engineers; Koreatown Immigrant Workers Alliance;
Maintenance Cooperation Trust Fund; Painters and Allied Trades
International Union; Professional and Technical Engineers, IFPTE
Local 21, AFL-CIO; Service Employees International Union,
California; State Building and Construction Trades Council;
United Union of Roofers, Waterproofers and Allied Workers;
UNITE-HERE, AFL-CIO; Utility Workers Union of America; The Wage
Justice Center
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 Chamber
of Commerce; California Citizens Against Lawsuit Abuse;
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
AB 465 (Roger Hernández)
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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; West Coast Lumber &
Building Materials Association; Western Electrical Contractors
Association; Western Growers Association; Wine Institute
HISTORY
Source : California Labor Federation, AFL-CIO
Related Pending Legislation : None Known
Prior Legislation :
AB 2617 (Weber, Chapter 910, Statutes of 2014) See Background;
Comment 6.
SB 1407 (Jackson, 2014) See Background.
AB 1715 (Committee on Judiciary, 2003) See Background.
SB 1538 (Burton, 2002) was substantively similar to AB 1715 and
would have prohibited employee waivers of Fair Employment and
Housing Act rights, but was vetoed by Governor Davis because, in
those difficult economic times, he was not prepared to place
additional burdens on employers by preventing them from
requiring alternative dispute resolution of employment claims.
Prior Vote :
Senate Labor and Industrial Relations Committee (Ayes 4, Noes 1)
Assembly Floor (Ayes 45, Noes 30)
Assembly Labor and Employment Committee (Ayes 5, Noes 2)
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