BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 465


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          GOVERNOR'S VETO


          AB  
          465 (Roger Hernández)


          As Enrolled  August 31, 2015


          2/3 vote


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          |ASSEMBLY:  |      | (May 14,      |SENATE: |      | (August 24,     |
          |           |45-30 |2015)          |        |22-15 |2015)            |
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          |ASSEMBLY:  |      | (August 27,   |        |      |                 |
          |           |46-31 |2015)          |        |      |                 |
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          Original Committee Reference:  L. & E.


          SUMMARY:  Imposes specified restrictions on contractual waivers  
          of rights and procedures under the Labor Code.  










                                                                     AB 465


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          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


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          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


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          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.








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          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