BILL ANALYSIS Ó
AB 2879
Page 1
Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2879
(Mark Stone) - As Amended April 7, 2016
SUBJECT: SERVICE MEMBERS: EMPLOYMENT PROTECTIONS
KEY ISSUES:
1)SHOULD ANTI-DISCRIMINATION AND EMPLOYMENT PROTECTIONS
ESTABLISHED BY THE LEGISLATURE FOR THE BENEFIT OF cALIFORNIA
MILITARY SERVICE MEMBERS AND GUARD MEMBERS BE SAFEGUARDED
AGAINST INVOLUNTARY WAIVER, often compelled as a condition of
employment, IN ORDER TO PRESERVE THE IMPORTANT PUBLIC
INTERESTS UNDERLYING THAT STATUTE?
2)SHOULD CALIFORNIA LAW ENSURE THAT ANY WAIVER OF THOSE LEGAL
RIGHTS OR PROCEDURES BE MADE BY the SERVICE MEMBER KNOWINGLY,
VOLUNTARILY, AND NOT AS A CONDITION OF EMPLOYMENT IF THE
WAIVER IS TO BE ENFORCEABLE?
SYNOPSIS
Federal law, the Uniformed Services Employment and Reemployment
Rights Act (USERRA) prohibits employment discrimination against
a person on the basis of past military service, current military
obligations, or intent to serve. (38 U.S.C. Secs. 4301-4333)
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Among other things, USERRA protects civilian job rights and
benefits for veterans and members of the active and reserve
components of the U.S. armed forces. In addition to USERRA,
California service members are provided further protections
under Section 394 of the Military & Veterans Code. Among other
things, Section 394 prohibits discrimination against any
enlisted member of the military or naval forces of the United
States because of that membership, and also provides that no
employer or person shall discharge any person from employment
because of the performance of any ordered military duty, or
prejudice or harm him or her in any manner in his or her
employment, position, or status by reason of performance of
military service or duty.
This bill would enact the Service Member Employment Protection
Act, important legislation that provides several key protections
to ensure that military service members do not involuntarily
waive any of the employment rights afforded to them under
Section 394 of the Military and Veterans Code. The cornerstone
of AB 2879 is a rule that prohibits employers from requiring an
active or reserve duty service member, as a condition of
employment, to waive any legal right, penalty, remedy, forum, or
procedure for violations of Section 394-including the right to
file and pursue a civil action or complaint with an appropriate
court, law enforcement, or other governmental entity. While the
bill would permit such waivers of service members' employment
rights under Section 394, it would require that they be knowing
and voluntary, in writing, and expressly not made as a condition
of employment.
The bill is opposed by the Chamber of Commerce and a coalition
of other business interests, who argue, among other things, that
the bill is likely preempted by the Federal Arbitration Act
(FAA) because it discriminates against arbitration clauses and
disfavors arbitration generally. The opponents also voice their
support for many purported benefits of private arbitration,
including that it is fast, fair to both sides, and economical,
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and therefore superior to the public court system for the
resolution of employment disputes. Opponents do not explain,
however, why they believe the bill would effectively eliminate
all private arbitration agreements for disputes under Section
394 if the employer and the service member employee could
together voluntarily elect arbitration as an option, as they
would be free to do under this bill.
The bill is supported by the National Guard Association of
California, the California Labor Federation, and the California
Employment Lawyers Association, among others. In contrast,
these supporters contend that there is little if any regulation,
fairness, or legal accountability to the parties or the public
in the world of private arbitration, and point out that
arbitrators need not be trained in the law, render a decision
consistent with the evidence presented to them, or even use the
law that would apply if the matter were heard before a court.
They contend that this bill is crafted to successfully avoid
questions of preemption because, without prohibiting or
disfavoring arbitration contrary to the FAA, it simply defines
the level of consent that is necessary to support the waiver of
a service member's rights. Should this bill be approved by this
Committee, it will be referred to the Assembly Labor &
Employment Committee.
SUMMARY: Safeguards employment protections for active military
service members and reserve guard members by, among other
things, prohibiting the waiver of certain legal rights under
Section 394 of the Military and Veterans Code as a condition of
employment. Specifically, this bill:
1)Prohibits a person from requiring another person to waive any
legal right, penalty, remedy, forum, or procedure for a
violation of Section 394 of the Military and Veterans Code
("Section 394"), as a condition of employment, including the
right to file and pursue a civil action or complaint with, or
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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 on the basis that the
other person refuses to waive any legal right, penalty,
remedy, forum, or procedure for a violation of Section 394,
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.
3)Requires any waiver of any legal right, penalty, remedy,
forum, or procedure for a violation of Section 394 to be
knowing and voluntary and in writing, and expressly not made
as a condition of employment, including any waiver of 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.
4)Provides that any waiver of any legal right, penalty, remedy,
forum, or procedure for a violation of Section 394 that is
required as a condition of employment shall be deemed
involuntary, unconscionable, against public policy, and
unenforceable, and clarifies that these provisions do not
affect the enforceability or validity of any other provision
of the contract.
5)Provides that any person who seeks to enforce a waiver of any
legal right, penalty, remedy, forum, or procedure for a
violation of Section 394 would have the burden of proving that
the waiver was knowing and voluntary and not made as a
condition of employment.
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6)Establishes that the above provisions shall apply to any
agreement to waive any legal right, penalty, remedy, forum, or
procedure for a violation of Section 394, including an
agreement to accept private arbitration, entered into,
altered, modified, renewed, or extended on or after January 1,
2017.
7)Clarifies that any violation of the above provisions does not
make a person guilty of a misdemeanor. Further clarifies that
injunctive relief and other remedies are available against any
person violating any of the provisions of Section 394, and
that these provisions are severable.
8)Makes legislative findings and declarations, as specified.
EXISTING LAW:
1)Prohibits discrimination against any officer or enlisted
member of the military or naval forces of the State or of the
United States because of that membership. Further provides
that no military service member shall be prejudiced or injured
by any person or employer with respect to that member's
employment, position, or status, or be denied or disqualified
for employment by virtue of membership or service in the
military. (Military and Veterans Code Section 394 (a).)
2)Provides that the above provision also applies to prohibit
discrimination by any officer or employee of the State, or of
any county, city and county, municipal corporation, or
district against a service member. (Military and Veterans
Code Section 394 (b).)
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3)Prohibits an employer or other person from discharging any
person from employment, or from retaliating against that
person because of the performance of any ordered military duty
or training or by reason of being a service member. Further
prohibits an employer or other person from hindering or
preventing that service member from performing any military
service or from attending any military encampment or place of
drill or instruction he or she may be called upon to perform
or attend by proper authority. (Military and Veterans Code
Section 394 (d).)
4)Prohibits any private employer from restricting or terminating
any collateral benefit for employees by reason of an
employee's temporary incapacitation incident or any period of
incapacitation of 52 weeks or less to duty in the National
Guard or Naval Militia. As used in this subdivision,
"temporary incapacitation" means any period of incapacitation
of 52 weeks or less. (Military and Veterans Code Section 394
(e).)
5)Provides that no person who provides lending or financing
shall discriminate against any person with respect to the
terms of a loan or financing, including, but not limited to,
the finance charge, based on that person's membership in the
military or naval forces of this State or of the United
States. (Military and Veterans Code Section 394 (f).)
6)Provides that it is an unlawful employment practice for an
employer, because of a person's military or veterans status,
(a) to refuse to hire or employ the person; (b) to refuse to
select the person for a training program leading to
employment; (c) to bar or to discharge the person from
employment or from a training program leading to employment;
or (d) to discriminate against the person in compensation or
in terms, conditions, or privileges of employment.
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(Government Code Section 12940 (a).)
7)Provides that it is an unlawful employment practice for an
employer to make any nonjob-related inquiry of an employee or
applicant that expresses, directly or indirectly, any
limitation, specification, or discrimination as to military
and veteran status. (Government Code Section 12940 (d).)
8)Establishes the California Arbitration Act which provides 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. (Code of Civil Procedure
Section 1280 et seq.)
9)Similarly establishes the Federal Arbitration Act (FAA) which
provides 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. (9 USC
Section 1 et seq.)
10) Permits arbitrators to disregard the law and/or the
evidence in rendering their decisions. Awards may be enforced
by the court, even if they are legally and factually
erroneous. (Moncharsh v. Heily & Blase et al, 3 Cal.4th 1
(1992).)
11) 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, 95 Cal. App. 4th 730 (2002); Cable
Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
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12) 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).)
13) Allows arbitrators to conduct arbitrations without
allowing for discovery, complying with the rules of evidence,
or explaining their decisions in written opinions. (Code of
Civil Procedure Sections 1283.1, 1282.2, 1283.4.)
14) Permits arbitrations to be conducted in private with no
public scrutiny. (Ting v. AT&T, 182 F.Supp. 2d 902 (N.D. Cal.
2002), affirmed, 319 F.3d 1126 (9th Cir 2003).)
15) 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, 140 Cal. App. 3d 979 (1983).)
16) Limits the relief that a court may grant to a party in
arbitration, no matter what misconduct has taken place in the
arbitration, to potential vacatur of the award and returning
the parties to further arbitration. Specifies the narrow
grounds on which an arbitrator's decision may be vacated.
(Code of Civil Procedure Section 1286.2.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
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COMMENTS: This bill would enact the Service Member Employment
Protection Act, important legislation that provides several key
protections to ensure that military service members do not
involuntarily waive any of the employment rights afforded to
them under Section 394 of the Military and Veterans Code
(described in greater detail below.) The cornerstone of AB 2879
is a rule that prohibits employers from requiring an active or
reserve duty service member, as a condition of employment, to
waive any legal right, penalty, remedy, forum, or procedure for
violations of Section 394-including the right to file and pursue
a civil action or complaint with an appropriate court, law
enforcement, or other governmental entity.
According to the author, the bill is needed for the following
reasons:
California Military & Veterans Code Section 394 prohibits
discrimination against any enlisted member of the military
or naval forces of the United States because of that
membership. Among other things, Section 394 also prohibits
an employer from discharging any person from employment, or
prejudicing or harming the person in any manner in his or
her employment, because of that person's membership in the
military or that person's performance of military service
or duties.
These common-sense employment protections for our military
service members are intended to ensure that they are not
targeted for termination or discrimination in the workplace
when, for example, they may be called away for deployment
or reserve guard duties in service of their country. If
they do face termination or any other violation of Section
394, the law allows them to file a civil action to enforce
their rights.
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Generally speaking, however, employers are increasingly
requiring their employees to resolve disputes in private
arbitration rather than by filing a civil action in court.
Recent cases have identified examples of service members
who were unable to enforce the employment rights
specifically established for their protection after being
compelled into arbitration. For example, recently a
service member who had previously served two tours in Iraq
was terminated from his job at an auto parts store when he
had to leave for a two week-long training. When he
challenged his termination, he was compelled to arbitration
and lost. The arbitrator in his case did not apply the law
correctly regarding the employer's burden of proof.
Because the case was decided in binding arbitration, the
service member had no opportunity to appeal or obtain
judicial review of the decision.
AB 2879 will help ensure that service members are not
prevented from going to court to enforce their employment
rights under Section 394 as the result of any waiver or
mandatory arbitration clause imposed as a condition of
employment. The bill is intended to ensure that waivers of
important employment rights and procedures arising under
Section 394 are made voluntarily and with the consent of
the service member employee.
Like the federal USERRA law, California Military &Veterans Code
Section 394 establishes important job protections and
anti-discrimination provisions for the benefit of military
service members. Federal law, the Uniformed Services Employment
and Reemployment Rights Act (USERRA), prohibits employment
discrimination against a person on the basis of past military
service, current military obligations, or intent to serve. (38
U.S.C. Secs. 4301-4333) Among other things, USERRA protects
civilian job rights and benefits for veterans and members of the
active and reserve components of the U.S. armed forces. USERRA
provides that returning service-members must be promptly
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reemployed in the same position that they would have attained
had they not been absent for military service, with the same
seniority, status and pay, as well as other rights and benefits
determined by seniority. Under USERRA, an employer may not deny
initial employment, reemployment, retention in employment,
promotion, or any benefit of employment to a person on the basis
of a past, present, or future service obligation. In addition,
an employer must not retaliate against a person because of an
action taken to enforce or exercise any USERRA right or for
assisting in an USERRA investigation. (U.S. Dept. of Labor
website; available at
http://www.dol.gov/vets/programs/userra/aboutuserra.htm.)
USERRA's provisions are liberally construed in favor of the
service member, while employer defenses are narrowly construed
and contrary state laws or private agreements are prohibited.
In addition to USERRA, service members are provided further
protections under California Military & Veterans Code Section
394. Among other things, Section 394 prohibits discrimination
against any enlisted member of the military or naval forces of
the United States because of that membership, and also provides
that no employer or person shall discharge any person from
employment because of the performance of any ordered military
duty, or prejudice or harm him or her in any manner in his or
her employment, position, or status by reason of performance of
military service or duty. In short, Section 394 establishes
important job protections for California service members and
reserve members because of the crucial role they play in
defending our country and the sacrifices they make to carry out
their military duties and training, including deployment
overseas or being away from work and family for extended periods
of time.
This bill responds to specific examples of military service
members who were wrongfully terminated in violation of Section
394, but who were made to involuntarily waive important rights
as a condition of employment. According to the author, the
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impetus for the bill arises out of recent examples brought to
his attention in which military service members or guard members
experienced wrongful termination or illegal discrimination in
violation of USERRA and Military and Veterans Code Section 394.
For example, the case of Maj. Steven Lively is illustrative of
the type of injustice that the bill seeks to address. Rather
than being able to enforce the employment protections afforded
to him under Section 394, however, Maj. Lively tells an alarming
story of being compelled into arbitration after being wrongfully
terminated from his job, and ultimately suffering the loss of
his job because the arbitrator in his case did not properly
follow or apply the law-all arising, according to Maj. Lively,
from the fact that he had involuntarily waived certain rights,
including the right to go to court, as a condition of his
employment contract.
On March 1, 2016, Maj. Lively, testified briefly about his
experience before the Senate Judiciary Committee, at an
informational hearing titled "The Federal Arbitration Act, the
U.S. Supreme Court, and the Impact of Mandatory Arbitration on
Californian Consumers and Employees." Subsequently he was able
to give a longer account of his experience to Committee staff,
which is recounted in more detail here.
According to Maj. Lively, he joined the United States Army after
the terrorist attacks of September 11 because he felt a duty to
serve his country in the wake of that horrific tragedy. Maj.
Lively became a Captain in the United States Army, while he
served three tours of duty overseas -- two in Iraq and one in
Afghanistan -- before returning to California to his wife and
family and civilian job. He was hired by Pick-N-Pull Auto
Parts, as its Asset Manager, where he directed the logistics of
its fleet of vehicles and other inventory. While he was
employed at Pick-N-Pull, Maj. Lively continued to serve as a
Reservist in the United States Army, which required him to
attend drills one long weekend per month and two weeks per year.
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According to Maj. Lively, at first he was asked seemingly
innocuous questions, such as whether he had control over his
military drill schedule. However, each time Maj. Lively missed
a day of work for a military drill, he was subjected to
discipline or other unfair treatment -- such as suddenly having
four weeks to complete a major project, instead of eight weeks.
The first time Maj. Lively missed a day of work to drill, he
received a "Final Written Warning" just days after his return.
Maj. Lively was told he needed to use his vacation days for
military drill days. Despite the obstacles constantly being
thrown towards Maj. Lively, he worked hard and achieved the
highest bonus in his division during his first 6 months of
employment with the company. Immediately after that
achievement, Maj. Lively had to attend his annual two-week
military drill. Right before he left, Maj. Lively's supervisor
told him that he would "fish or cut bait" with respect to Maj.
Lively's employment upon his return to duty.
The next time Maj. Lively was to attend a drill day, his
supervisor suddenly remembered an urgent assignment Maj. Lively
needed to complete, and he pulled over on the side of the road
on his way to the drill to finish this assignment as requested.
The next time Maj. Lively was to drill, his supervisor demanded
he skip his drill day to complete an assignment or be fired.
Maj. Lively made a complaint of retaliation to the company,
which was ignored. Just weeks after making the complaint, his
employment was terminated. Maj. Lively was told the company was
going through a "reduction in force," but he was the only
employee laid off at the time. In addition, the company marked
Maj. Lively ineligible for rehire. Just weeks later, another
individual -- who was not a member of the armed forces -- was
hired to perform Maj. Lively's job duties.
Maj. Lively brought a lawsuit in Sacramento County Superior
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Court, and sought a jury trial of all his claims. Instead,
because of an arbitration agreement Maj. Lively was required to
sign as a condition of employment, his case was sent to private,
secret arbitration. Maj. Lively had only five hours to present
all his witnesses, including himself and his wife to testify
about the devastating effects his termination had on their
family. At the conclusion of the arbitration, the arbitrator
declined to follow the law and ruled in favor of the employer.
Private arbitration is essentially unregulated and highly
controversial when it is mandatory, rather than voluntary.
Proponents of the bill, including the Consumer Attorneys and the
California Employment Lawyers Association, contend that in their
experience, private arbitration is an "anything-goes" private
justice industry which can be costly and is allegedly
unreceptive to consumers. There is little if any regulation,
oversight or legal accountability to the parties or the public.
Surprisingly to some, arbitrators are not regulated in any
fashion; they need not be trained in the law, or render a
decision consistent with the evidence presented to them, or even
apply the law in a particular dispute, as was the case in Maj.
Lively's case. According to Maj. Lively's attorney in the case,
the arbitrator declined to apply USERRA and Military and
Veterans Code Section 394 properly, and refused to require the
employer to meet its burden of proof to disprove retaliation
after Lively had proved what he needed to prove under existing
law. Despite the fact that the arbitrator refused to make the
employer meet his burden, because the arbitration was binding
and final, Maj. Lively had no way to remedy this wrong or seek
judicial review of the arbitrator's decision.
A recent New York Times investigation neatly summarized some of
the challenges that ordinary people like Maj. Lively face when
they find themselves compelled into arbitration:
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The Times, examining records from more than 25,000
arbitrations between 2010 and 2014 and interviewing
hundreds of lawyers, arbitrators, plaintiffs and judges in
35 states, uncovered many troubling cases. Behind closed
doors, proceedings can devolve into legal free-for-alls.
Companies have paid employees to testify in their favor. A
hearing that lasted six hours cost the plaintiff $150,000.
Arbitrations have been conducted in the conference rooms of
lawyers representing the companies accused of wrongdoing.
Winners and losers are decided by a single arbitrator who
is largely at liberty to determine how much evidence a
plaintiff can present and how much the defense can
withhold. To deliver favorable outcomes to companies, some
arbitrators have twisted or outright disregarded the law,
interviews and records show.
"What rules of evidence apply?" one arbitration firm asks
in the question and answer section of its website. "The
short answer is none."
Like the arbitrator in [a case detailed in the piece], some
have no experience as a judge but wield far more power.
And unlike the outcomes in civil court, arbitrators'
rulings are nearly impossible to appeal. When plaintiffs
have asked the courts to intervene, court records show,
they have almost always lost. Saying its hands were tied,
one court in California said it could not overturn
arbitrators' decisions even if they caused "substantial
injustice." (New York Times, "In Arbitration, a
'Privatization of the Justice System'" (November 2, 2015).)
What evidence is presented may, in fact, be incomplete because
parties in arbitration have no legal right to obtain evidence in
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support of their claims or defenses, or the claims or defenses
of the other party, contrary to the longstanding discovery
practice in public courts. Indeed, unlike judges, arbitrators
need not explain or defend the rationale for their decisions.
Furthermore, a private arbitrator's award may be enforced by a
court even if the decision is legally and factually erroneous.
(Moncharsh v. Heily & Blasé, 3 Cal.4th 1, (1992). (See also
Crowell v. Downey Community Hospital Foundation, 95 Cal.App.4th
730 (2002), allowing private arbitrators to issue binding
decisions that are legally enforceable but essentially
unreviewable by a court even if the arbitration agreement
expressly provides for judicial review.) The Moncharsh court
also stated that "arbitrators, unless specifically required to
act in conformity with rules of law, may base their decisions
upon broad principles of justice and equity, and in doing so may
expressly or impliedly reject a claim that a party might
successfully have asserted in a judicial action." (Id. at
10-11.) Thus, under Moncharsh, there appears to be little need
for an arbitrator to justify his or her decision because the law
and the evidence need not be followed, and because there is no
right for any party to appeal or obtain an independent review of
the arbitrator's ruling unless expressly provided by contract.
Regardless of the level or type of mistake, or even misconduct,
by the arbitrator, the most relief a court may grant to a party
in arbitration is to vacate the award and return the parties to
further arbitration, perhaps with the same arbitrator or
arbitration company. Under Code of Civil Procedure Section
1286.2, the grounds on which an arbitrator's decision may be
vacated are extremely narrow and the standards for vacatur
stringent; the arbitrator's award may only be vacated if, for
example, (1) the award was procured by corruption, fraud or
other undue means; (2) there was corruption in any of the
arbitrators; (3) the rights of the party were substantially
prejudiced by misconduct of a neutral arbitrator; or one of
three other conditions. Neither may the parties generally
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obtain any remedy against the arbitrator for misconduct because
arbitrators are afforded 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.
Arbitration's dramatic differences from the public justice
system are believed to be appropriate where parties with
relatively equal bargaining power have voluntarily chosen to
have their dispute and legal rights resolved by a method other
than the courts. For example, the use of binding arbitration
has a long and honored history in the resolution of
labor-management disputes where both parties are repeat-players
to whom arbitrators must be equally accountable in order to
enjoy repeat employment. Private arbitration becomes more
controversial, however, when it is imposed by more powerful
parties without negotiation or the right to withhold consent to
unfair terms.
This bill appears to be carefully crafted to focus on general
contract formation issues that are not subject to preemption
under the FAA. Enacted in 1947, the Federal Arbitration Act
generally provides that an arbitration agreement "shall be
valid, irrevocable and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract."
(9 U.S.C. Section 2.)
Opponents assert that the restrictions on waivers in this bill
are likely preempted by the FAA because the bill conflicts with
the FAA's policy of encouraging arbitration and disapproving
special impediments to the enforcement of arbitration contracts.
The coalition of opponents, led by the California Chamber of
Commerce, state that:
AB 2879 deems invalid any arbitration agreement that is
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made as a condition of employment for an individual who is
a member of the military forces, which waives their right
to pursue a claim in court, or with the Labor Commissioner
or another state agency, for a violation of Section 394 of
the Military and Veterans Code. This prohibition directly
conflicts with rulings from both the California Supreme
Court and the United States Supreme Court.
The Federal Arbitration Act and the California Arbitration
Act (CAA) evidence a strong preference for the enforcement
of arbitration agreements, so long as the underlying
contract is fair. In 2011, the U.S. Supreme Court in AT&T
Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) held that
the FAA prohibits states from conditioning the
enforceability of an arbitration agreement on the
availability of class-wide arbitration procedures as such a
requirement would be inconsistent with the intent of the
FAA. Specifically, the Court stated that, "when state law
prohibits outrights the arbitration of a particular type of
claim, the analysis is straightforward: The conflicting
rule is displaced by the FAA." Id.
A state law that frustrates or interferes with a prime
objective of arbitration to streamline proceedings and
provide expeditious results is preempted by the FAA. Id. at
1749. (See also Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.
4th 1109 (2013) (reversing its initial holding and stating
that an arbitration agreement that waived an employee's
right to pursue a claim with the Labor Commissioner was not
per se unconscionable.)) While the Court specified that
states could still regulate contractual defenses, those
defenses must be applicable to all contracts, not just
those targeted at arbitration.
In response, the author notes that the FAA makes agreements to
arbitrate enforceable "save upon such grounds as exist at law or
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in equity for the revocation of any contract." Therefore, under
this so-called "savings clause," states may regulate contracts
under "generally applicable contract defenses, such as fraud,
duress, or unconscionability." See Allied-Bruce Terminix Cos.
v. Dobson, 513 U.S. 265, 281 (1995); Doctor's Associates, Inc.
v. Casarotto, 517 U.S. 681, 687 (1996). In other words, states
are not barred from establishing rules on the validity of
arbitration agreements, as long as those rules apply to
contracts generally and not just to agreements that include
arbitration provisions.
Here, the bill prohibits a person from requiring another person
"to waive any [emphasis added] legal right, penalty, remedy,
forum, or procedure for a violation of Section 394 of the
Military and Veterans Code as a condition of employment,"
including the right to file and pursue a civil action or
complaint with specified law enforcement or other governmental
entities. The bill applies equally to public employers as well
as private employers. Contrary to opponents' characterizations
of the bill, AB 2879 does not "outright prohibit the arbitration
of a particular type of claim", the author contends, nor does it
particularly single out arbitration because the bill's
restrictions apply equally to "waiver of any legal rights or
procedure for a violation of Section 394", not just specifically
an arbitration agreement.
Instead, the author contends, this bill relies squarely on the
general contract law principle of unconscionability to
invalidate waivers that are required as a condition of
employment. Committee staff notes that unconscionability is
routinely applied by the courts to invalidate contracts,
including arbitration or other waiver agreements. (See, e.g.
Wherry v. Award, Inc., 192 Cal. App.4th 1242 (2011).)
Opponents assert, however, that there are many other mandatory
provisions that an employer can require as a condition of
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employment that are not precluded, such as compensation, at-will
or "for cause" termination, trade-secret information, conflict
of interest clauses, hours of work, attendance policies, etc.
They contend that all of these provisions could still be made as
a condition of employment without being statutorily deemed
"unconscionable" and, therefore, AB 2879 is targeted and
discriminates against arbitration clauses.
Opponents also contend that existing law already mandates all
employment arbitration agreements, not just those for certain
employees, be conscionable, and cite a number of cases in which
courts have upheld mandatory arbitration agreements that were
consented to by the employee as a condition of employment.
(See, e.g. Armanderiz v. Foundation Health Psychare Services,
Inc., 24 Cal.4th 83 (2000).)
In response, the author contends that there are numerous
constitutional rights waived by a mandatory arbitration clause
-for example, the First Amendment right of petition and the
Seventh Amendment right to trial by jury. Mandatory provisions
about conflict of interest clauses or attendance policies aside,
the mandatory arbitration provision at issue here is an
altogether different concern. Given the important public policy
of protecting service members from discrimination based on their
military service, as established by USERRA and reflected in
Section 394, it is hard to see where the waiver of such rights
as a condition of employment does not rise to the level of
unconscionable.
This bill defines the level of consent that is necessary to
support the waiver of rights, without prohibiting or disfavoring
arbitration contrary to the FAA. While existing law may protect
employees from unconscionable contracts, the author contends
that it does not adequately protect workers from waivers of
rights that are not knowing and voluntary. This bill seeks to
establish general contract principles about the level of consent
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that is needed to support the waiver of rights-more
specifically, it seeks to ensure that agreements to waive
important statutory rights are made knowingly and voluntarily,
and not required as a condition of employment.
First, the bill provides that, except where prohibited by
federal or state law, any waiver of any legal right, penalty,
remedy, forum, or procedure for a violation of Section 394,
including the right to file and pursue a civil action shall be
knowing and voluntary, and in writing, and expressly not made as
a condition of employment. Second, the bill provides that any
waiver of any legal right, penalty, remedy, forum, or procedure
for a violation of Section 394 that is required as a condition
of employment shall be deemed involuntary, unconscionable,
against public policy, and unenforceable. Third, the bill
provides that any person who seeks to enforce a waiver of any
legal right, penalty, remedy, forum, or procedure for a
violation of this section shall have the burden of proving that
the waiver was knowing and voluntary and not made as a condition
of employment. In short, the bill seeks to establish that any
waiver of legal rights under Section 394 must be knowing and
voluntary and not made as a condition of employment, in which
case the waiver is deemed involuntary and unenforceable.
According to the author, these provisions do not frustrate the
purpose of the FAA because that purpose follows the basic
precept, emphasized numerous times by the Supreme Court, that
arbitration "is a matter of consent, not coercion." Volt
Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468 (1989); Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 US 52 (1995). Furthermore,
the author notes that in Concepcion, the U.S. Supreme Court
explicitly left room for states to regulate the formation of
arbitration agreements to address matters of consent. (131
S.Ct. 1740 (2011); See Footnote 6.) Consequently, the author
contends, AB 2879 does not run afoul of Concepcion because it
addresses in a broad and general way the concerns that attend
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contracts of adhesion - that is, that the contract is entered
into knowingly and voluntarily and not as a condition of
employment. According to the author:
AB 2879 is not a categorical prohibition on the enforcement
on arbitration agreements. Indeed it actually permits
knowing and voluntary agreements. Nor could the FAA
authorize or require the enforcement of involuntary or
coerced arbitration agreements. There are numerous
constitutional rights waived by an agreement to
arbitrate-the First Amendment right of petition, the Fifth
Amendment right of Due Process and the Seventh Amendment
right to trial by jury. The law has always required that
the waiver of those rights be knowing and voluntary. The
FAA, a mere statute, does not have the power to reduce or
conflict with constitutional guarantees.
Indeed, because orders compelling arbitration and the entry
of judgments based on arbitration awards are actions of the
courts and thus 'state action', it would be plainly
unconstitutional for the courts to participate in the
involuntary or coerced deprivation of those rights. There
is no Supreme Court case that remotely suggests that a
state statute that merely requires a truly consensual
agreement to arbitrate is preempted. What has been
preempted are categorical refusals to enforce agreements
that would be otherwise be enforceable under the FAA.
Committee staff notes that this bill does not seek to bar
arbitration or other waiver agreements; it simply makes it
unlawful to seek an unknowing and involuntary waiver of rights
or procedures regarding abuse laws prior to a dispute arising.
The author reiterates that there is no state or federal policy
favoring involuntary waiver or arbitration agreements. If this
bill is pre-empted, it would seem that the FAA would logically
also then pre-empt courts from applying unconscionability
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principles to any arbitration or other waiver agreement. No
court decision has been brought to the attention of the
Committee or discovered in the Committee's own research lending
support to such a far-reaching view of FAA pre-emption.
This bill protects against retaliation by an employer for the
refusal to waive any legal rights or procedures for violations
of Section 394. According to the author, in order to ensure
that service members do not face retaliation for refusing to
waive any legal right that they may only waive knowingly and
voluntarily, the bill contains additional protections.
Specifically, the bill provides that a person shall not
threaten, retaliate, or discriminate against another person on
the basis that the other person refuses to waive any legal
right, penalty, remedy, forum, or procedure for a violation of
Section 394, 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.
Committee staff notes that this provision prohibiting
retaliation against workers who refuse to waive any substantive
or procedural right under Military and Veterans Code 394 is
likely not preempted by the FAA because the FAA preemption
doctrine governs only the enforceability of arbitration
agreements. If the worker refuses to sign an arbitration
agreement, it is not an issue of enforcing the agreement. At
that point, it appears instead to simply be an issue of
protecting the worker against retaliation for his or her refusal
to agree to contract provisions that take away legal rights-a
protection well within the Legislature's province and outside
the scope of FAA preemption analysis.
Opponents' concern about a "litigation predicament." Opponents
argue that the bill forces employers into a situation where they
are subject to increased risk of litigation no matter what they
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try to do to comply with the bill. They explain their concerns
as follows:
AB 2879 is targeted at members of the military forces.
Notably in 2014, members of the military were added as a
protected classification under FEHA for purposed of
employment discrimination (AB 556, Salas). Similar to
other protected classification currently in California law,
including age, marital status or disability, an applicant's
status as member of the military forces is a subject
employers seek to avoid when interviewing or reviewing a
candidate for employment in order to avoid a discrimination
claim if the applicant is ultimately not hired.
AB 2879 would place employers in a litigation predicament.
If they inquire into the status of the applicant for
purposes of complying with AB 2879 and specifically ask the
applicant whether they are a member of the military, the
employer risks a discrimination claim if the applicant is
ultimately not hired. Conversely, if the employer does not
inquire into the applicant's status as a member of the
military and has the applicant sign an arbitration
agreement just like every other employee, the employer is
at risk for litigation under AB 2879. Such a predicament
is entirely unfair to the employer.
Committee staff notes that, under existing law, any person who
violates Section 394 is guilty of a misdemeanor and is liable to
the injured person for actual damages sustained and reasonable
attorney fees incurred. (Section 394 (g).) Earlier versions of
the bill would have expanded this misdemeanor liability to
include violations of the proposed prohibitions against
requiring another person to waive any legal right under Section
394 as a condition of employment, and so forth. The April 7,
2016 amendments to the bill clarify that this was not the
author's intent, and in any case now restrict the misdemeanor
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liability only to violations of current law.
While opponents' concerns appear to be risk of litigation rather
than being exposed to misdemeanor liability, Committee staff
questions whether this bill, as suggested by the opponents,
really requires employers to treat military service members any
differently than they otherwise would be treated under existing
law. There is no need to inquire into the status of the job
applicant in order to comply with this bill because an employer
could comply simply by not requiring an applicant to sign away
his or her rights under Section 394 as a condition of
employment. Committee staff also notes that whether or not the
applicant is asked about his or her military status prior to
being proffered an employment contract for signature, any waiver
of legal rights that is required as a condition of employment is
deemed involuntary and unenforceable. Since such a waiver is
already unenforceable at that point, is there still an increased
risk of additional litigation by the applicant at that point?
Finally, staff notes that if the applicant wishes to knowingly
and voluntarily waive any legal right with the employer,
including the right to go to court for an employment dispute,
and it is not a condition of employment, then the bill does not
prohibit such waiver and there is no litigation predicament.
ARGUMENTS IN SUPPORT: The bill is supported by the National
Guard Association of California (NGAC), who writes in support:
The National Guard Association of California was
established in 1960 to represent the interests of the
17,000 current members of the California National Guard.
The NGAC serves as the collective voice of the membership
to advance and protect the interest of current and past
members of the State Military Department as well as its
federal active duty and reserve force comrades in arms.
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AB 2879 is needed to ensure that service members are not
prevented from going to court to enforce their employment
rights under Section 394 as the result of any waiver or
mandatory arbitration clause imposed in an employment
contract. AB 2879 is part of a growing movement to ensure
that consumer and employment rights afforded to service
members cannot be waived by an arbitration clause. For
example, Congress recently enacted the Military Lending Act
to prohibit creditors from requiring active duty or reserve
service members to submit their disputes to arbitration.
We applaud your ongoing efforts to safeguard employment
rights specifically established for the protection of
service members in California.
ARGUMENTS IN OPPOSITION: The opponents' coalition also contends
that the bill will create a worse litigation environment and
result in a lack of job creation. They state:
Banning pre-dispute employment arbitration agreement for
employees who are engaged in military forces will force
those individuals into an already overburdened judicial
system. Assuming an employee can find an attorney willing
to pursue the case, an employee will potentially have to
wait years for a resolution, as opposed to arbitration that
is generally resolved in less than a year? AB 2789 will
neither help California's litigation environment nor
promote businesses' ability to create jobs as it will drive
up California employers' litigation costs.
Previous and pending related legislation. AB 2667 (Thurmond) of
2016 seeks to establish that a waiver or release of claims under
the Unruh Civil Right Act is contrary to public policy and shall
be unenforceable, unless the waiver or release of claims is
knowing and voluntary. AB 2667 is currently awaiting hearing in
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Assembly Judiciary Committee.
AB 465 (Hernández) of 2015, is substantially similar to this
bill, and would have prohibited any person from requiring
another person, as a condition of employment, to agree to the
waiver of any legal right or procedure, but for employment law
violations in the Labor Code rather than violations of Section
394 of the Military & Veterans Code. AB 465 would have provided
that any such waiver required from an employee or potential
employee as a condition of employment or continued employment is
unconscionable, against public policy, and unenforceable. The
bill was vetoed by Governor Brown.
AB 2617 (Weber), Ch. 910, Stats. 2014, ensures that a contract
to waive any of the rights, penalties, remedies, forums, or
procedures under the Ralph Civil Rights Act or the Tom Bane
Civil Rights Act, including any provision that has the effect of
limiting the full application or enforcement of any right,
remedy, forum, or procedure available under the Ralph Civil
Rights Act or the Tom Bane Civil Rights Act, is a matter of
voluntary consent, not coercion.
SB 1407 (Jackson) of 2014 would have provided that a waiver or
release of claims under the Fair Employment and Housing Act
(FEHA) is contrary to public policy and shall be unenforceable,
unless the waiver or release of claims is knowing and voluntary.
SB 1407 died on the Assembly Floor inactive file.
AB 2365 (Lieu), Ch. 385, Stats. 2010, permits a service member,
when enforcing his or her rights under selected sections of the
Military and Veterans Code, to recover actual damages,
reasonable attorney's fees, and costs from any person who
violates those rights and consumer protections.
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REGISTERED SUPPORT / OPPOSITION:
Support
National Guard Association of California
California Employment Lawyers Association
California Labor Federation
Consumer Attorneys of California
Consumers for Auto Reliability and Safety
Opposition
California Chamber of Commerce
Agricultural Council of California
American Insurance Association
Association of California Companies
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California Employment Law council
California Farm Bureau Federation
California League of Food Processors
California Manufacturers &Technology Association
California New Car Dealers & Association
Civil Justice Association of California
National Federation of Independent Business
Oxnard Chamber of Commerce
Property Causality Insurers Association of America
Rancho Cordova Chamber of Commerce
Redondo Beach Chamber of Commerce & Visitor's Bureau
South Bay Association of Chambers of Commerce
TechNet
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West Coast Lumber & Building Material Association
Western Growers Association
Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334