BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 465|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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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
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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
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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.
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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
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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):
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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
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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
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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
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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
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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
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