BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        AB 465|
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                                   THIRD READING 


          Bill No:  AB 465
          Author:   Roger Hernández (D)
          Amended:  7/2/15 in Senate
          Vote:     21  

           SENATE LABOR & IND. REL. COMMITTEE:  4-1, 6/10/15
           AYES:  Mendoza, Jackson, Leno, Mitchell
           NOES:  Stone

           SENATE JUDICIARY COMMITTEE:  5-2, 6/23/15
           AYES:  Jackson, Hertzberg, Leno, Monning, Wieckowski
           NOES:  Moorlach, Anderson

           ASSEMBLY FLOOR:  45-30, 5/14/15 - See last page for vote

           SUBJECT:   Contracts against public policy


          SOURCE:    California Labor Federation, AFL-CIO

          DIGEST:   This bill prohibits any person from requiring another  
          person, as a condition of employment, to agree to the waiver of  
          any legal right, penalty, forum, or procedure for any employment  
          law violations. This bill prohibits a person from threatening,  
          retaliating against, or discriminating against another person  
          based on a refusal to agree to such waiver. This bill requires  
          that any waiver of a person's employment rights be knowing and  
          voluntary and in writing, and expressly not made as a condition  
          of employment. This bill imposes a $10,000 penalty against the  
          employer for each violation of its provisions, with the penalty  
          moneys and reasonable attorney's fees awarded to the prevailing  
          claimant.









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          Senate Floor Amendments of 7/2/15 specify that an employer  
          cannot require an employee to waive any legal right, penalty,  
          forum or procedure that state or federal law prohibits from  
          being waived. 

          ANALYSIS: 
          
          Existing law:

          1)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. 

          2)Provides that 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. 

          3)Establishes the California Arbitration Act (CAA) and the  
            Federal Arbitration Act (FAA) which provide 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.

          This bill: 

          1)Prohibits 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.

          2)Prohibits a person from threatening, retaliating, or  
            discriminating against another person for refusing to waive  
            any legal right, penalty, remedy, forum, or procedure for  
            violations.  








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          3)Provides that except for any legal right, penalty, forum, or  
            procedure that state or federal law prohibits from being  
            waived, any waiver of any legal right, penalty, remedy, forum,  
            or procedure for a violation of the Labor Code shall be  
            knowing and voluntary and in writing, and expressly not made  
            as a condition of employment.

          4)Specifies 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 be deemed  
            involuntary, unconscionable, against public policy, and  
            unenforceable.

          5)Specifies that any person seeking to enforce a waiver of any  
            legal right, penalty, remedy, forum, or procedure for a  
            violation of the Labor Code shall have the burden of proving  
            that the waiver was knowing and voluntary and not made as a  
            condition of employment.

          6)Applies 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.

          7)Provides that in addition to any other remedies available, a  
            person who violates these provisions is liable for a civil  
            penalty not exceeding $10,000 per individual for each  
            violation of these provisions and reasonable attorney's fees.

          8)Makes related legislative findings and declarations regarding  
            rights under the Labor Code.
           
          Background 
          
          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 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  







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          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, CAA 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 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.,  
          500U.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.  
             
          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, the  
          Legislature passed and the Governor signed AB 2617 (Weber,  
          Chapter 910), enacting these same protections against mandatory  
          waivers of civil rights protections. 

          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  







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          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:

           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).)

           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).)








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           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))

           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 (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.
           
          Prior Legislation
          
          AB 2617 (Weber, Chapter 910, Statutes of 2014) 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.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified7/6/15)







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          California Labor Federation, AFL-CIO (source)
          American Civil Liberties Union of California
          American Federation of State, County and Municipal Employees
          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
          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 California, 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
          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









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          OPPOSITION:   (Verified7/6/15)


          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 Restaurant Association 
          California Retailers Association
          California Trucking Association
          Civil Justice Association of California 
          Cooperative of American Physicians 
          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







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          ARGUMENTS IN SUPPORT:     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. 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 fundamentally inferior 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."  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 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.


          ARGUMENTS IN OPPOSITION:     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 California Supreme Court  
          and the U.S. Supreme Court and, if signed into law, they believe  







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          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 challenged.  


          Opponents argue that adequate protections already exist for  
          mandatory, pre-dispute employee arbitration agreements and that  
          it 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.


          ASSEMBLY FLOOR:  45-30, 5/14/15
          AYES:  Alejo, Bloom, Bonilla, Bonta, Burke, Calderon, Campos,  
            Chau, Chiu, Chu, Cooper, Dababneh, Dodd, Eggman, Frazier,  
            Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez,  
            Gonzalez, Gordon, Roger Hernández, Holden, Jones-Sawyer,  
            Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian,  
            O'Donnell, Perea, Quirk, Rendon, Ridley-Thomas, Santiago, Mark  
            Stone, Thurmond, Ting, Weber, Williams, Wood, Atkins
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Beth Gaines, Gallagher, Gray, Grove, Hadley,  
            Harper, Irwin, Jones, Kim, Lackey, Linder, Maienschein,  
            Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson,  
            Steinorth, Wagner, Waldron, Wilk
          NO VOTE RECORDED:  Brown, Cooley, Daly, Rodriguez, Salas

          Prepared by:Alma Perez / L. & I.R. / (916) 651-1556
          7/7/15 17:19:28


                                   ****  END  ****








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