BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 465| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 465 Author: Roger Hernández (D) Amended: 8/19/15 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, with some exemptions, 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 threats, retaliation, or discrimination for refusing to agree to such waiver. This bill requires that any waiver be knowing and voluntary and in writing, and expressly not made as a condition of employment. Senate Floor Amendments of 8/19/15 (1) delete a $10,000 civil penalty that would have been imposed on violators of the provisions and instead provides for injunctive relief in addition to the reasonable attorney's fees; (2) exempt from the AB 465 Page 2 provisions of the bill, a person registered with a self-regulatory organization in the securities industry, as specified, and an employee who is individually represented by legal counsel in negotiating the terms of an agreement; and (3) add a severability clause to the provisions of the bill. 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 AB 465 Page 3 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. 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 injunctive relief and any other remedies available, a court may award a plaintiff with reasonable attorney's fees. 8) Exempts from the provisions of this bill, the following: a) A person registered with a self-regulatory organization as defined by the Securities Exchange Act of 1934 or regulations adopted under that act pertaining to any arbitration requirement of the self-regulating organization. AB 465 Page 4 b) An employee who is individually represented by legal counsel in negotiating the terms of an agreement to waive any legal right, penalty, remedy, forum, or procedure for a violation of labor code. 9) Specifies that the provisions of this bill are severable and if any provision or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application. 10)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 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 AB 465 Page 5 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, Statutes of 2014), 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 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 (for a more in depth discussion on these, please refer to the Senate Labor and Industrial Relations Committee analysis): AB 465 Page 6 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. The process of arbitration is unregulated and biased. Critics of private arbitration 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 AB 465 Page 7 SUPPORT: (Verified8/20/15) California Labor Federation, AFL-CIO (source) American Civil Liberties Union of California American Federation of State, County and Municipal Employees California Alliance for Retired Americans 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 Entertainment Union Coalition Equal Rights Advocates IATSE Local 80 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 AB 465 Page 8 UNITE-HERE Utility Workers Union of America OPPOSITION: (Verified8/20/15) 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 Motion Picture Association of America 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 Securities Industry and Financial Markets Association South Bay Association of Chambers of Commerce AB 465 Page 9 Southwest California Legislative Council Torrance Area Chamber of Commerce Valley Industry & Commerce Association West Coast Lumber & Building Materials Association Western Electrical Contractors Association Western Growers Association Wine Institute 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 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 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 it will be challenged and ultimately found to be preempted as well. They argue that this bill will only serve AB 465 Page 10 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 a 2003 article in the New York University School of Law legal journal regarding employment arbitration which 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 8/21/15 13:58:58 **** END ****