BILL ANALYSIS Ó AB 465 Page 1 GOVERNOR'S VETO AB 465 (Roger Hernández) As Enrolled August 31, 2015 2/3 vote -------------------------------------------------------------------- |ASSEMBLY: | | (May 14, |SENATE: | | (August 24, | | |45-30 |2015) | |22-15 |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- -------------------------------------------------------------------- |ASSEMBLY: | | (August 27, | | | | | |46-31 |2015) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: L. & E. SUMMARY: Imposes specified restrictions on contractual waivers of rights and procedures under the Labor Code. AB 465 Page 2 The Senate amendments: 1)Eliminate a $10,000 civil penalty for violations of this bill. 2)Provide for injunctive relief. 3)Provide that this bill does not apply to persons registered with a self-regulatory organization as defined by the federal Securities Exchange Act of 1934 with respect to any requirement that that individual arbitrate disputes that arise with their employer as specified under the rules of the self-regulatory organization. 4)Provide that this bill does not apply to 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 the Labor Code. 5)Add a severability clause. 6)Make other clarifying changes. FISCAL EFFECT: None. This bill is keyed non-fiscal by the Legislative Counsel. COMMENTS: 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 submit all claims to the employer's arbitrator. Therefore, this bill is designed to ensure that waivers of important employment rights and AB 465 Page 3 procedures arising under California law are made voluntarily and with the consent of the employee. This bill largely tracks the provisions of AB 2617 (Weber), Chapter 910, Statutes of 2014, legislation introduced last year and signed into law by Governor Brown, which imposed specified restrictions on future contractual waivers of rights under the Ralph Civil Rights Act and Bane Civil Rights Act. This bill is sponsored by the California Labor Federation, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). They state that 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. They argue that this bill would provide some basic protections to these workers. It would require that these agreements be voluntary and not required as a condition of employment. It would require that a waiver of rights be voluntary. Lastly, it would 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. Opponents argue that this bill directly conflicts with prior and recent rulings from both the California and United States Supreme Courts, which have consistently stated any state law that interferes with the Federal Arbitration Act is preempted. Opponents also argue that adequate protections already exist for mandatory, pre-dispute employee arbitration agreements. AB 465 Page 4 Opponents contend that arbitration provides an effective and efficient means to resolve employment-related claims and that this bill will send disputes into the overburdened and underfunded judicial system. GOVERNOR'S VETO MESSAGE: Assembly Bill 465 would outlaw the use of mandatory arbitration agreements as a condition of employment, making California the only state in the country to have this particular prohibition. I have reviewed in depth the arguments from both sides about the fairness and utility of mandatory arbitration agreements. While most evidence shows that arbitration is quicker and more cost-effective than litigation, there is significant debate about whether arbitration is less fair to employees. The evidence on actual outcomes in arbitration versus litigation is conflicting and unclear, with some studies showing employees receive more in arbitration while other studies show the opposite. While I am concerned about ensuring fairness in employment disputes, I am not prepared to take the far-reaching step proposed by this bill for a number of reasons. California courts have addressed the issue of unfairness by insisting that employment arbitration agreements must include numerous protections to be enforceable, including neutrality of the arbitrator, adequate discovery, no limitation on damages or remedies, a written decision that permits some judicial review, and limitations on the costs of arbitration. See, e.g., Armendariz v. Foundation Health Psychcare Services, Inc. 24 Cal. 4th 83 (2000). If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition. AB 465 Page 5 In addition, a blanket ban on mandatory arbitration agreements is a far-reaching approach that has been consistently struck down in other states as violating the Federal Arbitration Act ("FAA"). Recent decisions by both the California and United States Supreme Courts have found that state policies which unduly impede arbitration are invalid. Indeed, the U.S. Supreme Court is currently considering two more cases arising out of California courts involving preemption of state arbitration policies under the FAA. Before enacting a law as broad as this, and one that will surely result in years of costly litigation and legal uncertainty, I would prefer to see the outcome of those cases. For these reasons, I am returning AB 465 without my signature. Analysis Prepared by: Ben Ebbink / L. & E. / (916) 319-2091 FN: 0002490