BILL ANALYSIS Ó
AB 2879
Page 1
Date of Hearing: May 4, 2016
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 2879
(Mark Stone) - As Amended April 7, 2016
SUBJECT: Service Member Employment Protection Act
SUMMARY: Enacts the Service Member Employment Protection Act to
safeguard employment protections for active military service
members and reserve guard members by, among other things,
prohibiting the waiver of certain legal rights under existing
state law 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
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
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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.
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.
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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).)
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
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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.
(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).)
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FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: This bill would enact the Service Member Employment
Protection Act to provide 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. According to the author, the
cornerstone of this bill 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.
Members of this Committee will be familiar with the broad issues
raised by this bill from the discussion of last year's AB 465
(Roger Hernández). AB 465 was 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.
With respect to this bill, the author states that it is needed
for the following reasons:
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"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.
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.
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[This bill] 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."
Background on Federal USERRA and California Military & Veterans
Code Section 394
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 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
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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.
Stated Need for This Bill
According to the author, the 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
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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 Assembly Judiciary
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.
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.
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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
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.
Criticism of Mandatory Arbitration as Essentially Unregulated
and Highly Controversial
As discussed last year in this Committee's analysis of AB 465,
recently there have been frequent discussions as to the merits
and benefits of mandatory private arbitration as an alternative
forum to the civil justice system. Supporters of mandatory
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arbitration generally assert that it is a more efficient and
less costly manner of resolving legal disputes because they are
able to limit discovery, 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 of private arbitration have argued that it is a
mostly 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.
As a committee analysis of AB 2617 (Weber) from 2014 described
the situation:
"Surprisingly to some, arbitrators are not regulated in any
fashion; they need not be trained in the law, or even apply
the law in a particular dispute, or render a decision
consistent with the evidence presented to them. What evidence
is presented may, in fact, be incomplete because parties in
arbitration have no legal right to obtain evidence in 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. There is
no need 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 the contract expressly so provides.
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. The grounds on which
an arbitrator's decision may be vacated, however, are
extremely narrow and the standards for vacatur are stringent.
Neither may the parties generally obtain any remedy against
the arbitrator for misconduct because arbitrators are afforded
substantial if not absolute immunity from civil liability for
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acts relating to their decisions, even in the case of bias,
fraud, corruption or other violation of law."
In particular, critics of mandatory arbitration point to the
following reported limitations of existing law:
Existing law provides that trial by jury is an inviolate
right and shall be secured to all. (Cal. Const. Article 1,
Section 16.)
Existing law 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
(1992) 3 Cal.4th 1.)
Existing law 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
(2002) 95 Cal. App. 4th 730; Cable Connection, Inc. v.
DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
Existing law 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).)
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Existing law 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.)
Existing law permits arbitrations to be conducted in
private with no public scrutiny. (Ting v. AT&T (2002) 182
F.Supp. 2d 902 (N.D. Cal.), affirmed, 319 F.3d 1126 (9th
Cir 2003).)
Existing law 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
(1983) 140 Cal. App. 3d 979.)
Existing law 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, perhaps
with the same arbitrator or arbitration company. The
grounds on which an arbitrator's decision may be vacated
are narrow and the standards for vacatur are high. (Code
of Civil Procedure Section 1282.6.)
"Take It Or Leave It" - Mandatory Arbitration in the Employment
Context
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). That case involved a suit brought by
an employee alleging age discrimination by the employer in which
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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.
Most commentators point to the Gilmer decision as "opening the
floodgates" to the use of mandatory pre-dispute arbitration
clauses in employment. In 2010, 27 percent of U.S. employers
reported that they required arbitration of employment disputes -
covering over 36 million employees. This percentage is likely
even higher today.
Critics contend that forced waivers (including mandatory
arbitration) of workplace claims are anathema to our public
justice system because they eliminate important procedural
guarantees of fairness and due process that are hallmarks of our
judicial system. These clauses are often buried in the fine
print of employment applications, employee handbooks and
manuals. 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.
Moreover, mandatory arbitration is generally imposed or required
as a condition of employment. Employers often condition an
employee's ability to obtain or keep a job on their "agreement"
to submit claims which otherwise could have been presented in
the civil court system to arbitration. In mandatory arbitration
situations, an employee's job may depend on accepting such a
provision - the only other choice is generally not to take the
job.
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Questions of Federal Preemption Under the Federal Arbitration
Act
The Federal Arbitration Act (FAA) (9 U.S.C. Sec. 2) provides
that an arbitration agreement shall be valid, irrevocable, and
enforceable, except on such grounds as exist at law or in equity
for the revocation of any contract.
Opponents argue that (as evidenced by recent case law), this
bill is preempted by the FAA as it discriminates against
arbitration clauses and disfavors arbitration. Specifically,
they state:
"[This bill] deems invalid any arbitration agreement that is
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 (FAA) and the California
Arbitration Act (CAA) evidence a strong preference for
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, "[w]hen state law
prohibits outright the arbitration of a particular type of
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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 re-emphasizing this point, the U.S. Supreme Court recently
issued another opinion in December 2015, DIRECTV, Inc. v.
Imburgia, that criticized California for discriminating
against consumer arbitration agreements. In DIRECTV, a
California court had applied a rule of law to invalidate an
arbitration agreement, which the Supreme Court had already
deemed unlawful. In the opinion authored by Justice Breyer,
the Court stated that, because California applied an invalid
state law to only arbitration agreements and no other
contracts, such an application did not place arbitration
agreements on "'equal footing'" with other contracts and,
therefore, was pre-empted by the FAA. DIRECTV, 136 S.Ct. 463
(2015); See also Doctor's Associates, Inc. v. Cassarotto, 517
U.S. 681 (1996) (striking down a state requirement for a
special notice required only for arbitration agreements, not
contracts in general, as preempted by the FAA).
Similarly here, [this bill] only applies to mandatory
employment arbitration clauses that waive an individual, who
is a member of the military forces, to pursue civil litigation
for any dispute arising from a violation of Section 394 of the
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Military and Veterans Code, or Labor Code claims before the
Labor Commissioner. There are numerous other mandatory
provisions that an employer can require as a condition of
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. All of these provisions could still be made as
a condition of employment without being statutorily deemed
"unconscionable" and, therefore, [this bill] is targeted and
discriminates against arbitration clauses. Moreover, banning
arbitration clauses made as a condition of employment that
include a waiver of the right to pursue a claim with the Labor
Commissioner will interfere with and disfavor arbitration as a
practical matter. Accordingly, [this bill] is likely
preempted by the FAA."
In response, the author notes that the FAA makes agreements to
arbitrate enforceable "save upon such grounds as exist at law or
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.
The author contends that this bill relies squarely on the
general contract law principle of unconscionability to
invalidate waivers that are required as a condition of
employment. 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).)
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As cited above, opponents assert, however, that there are many
other mandatory provisions that an employer can require as a
condition of 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, this bill 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.
According to the author, the provisions of this bill do not
frustrate the purpose of the FAA because that purpose follows
the basic precept, emphasized numerous times by the Supreme
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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, this bill does not run afoul of Concepcion because it
addresses in a broad and general way the concerns that attend
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:
"[This bill] 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
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agreement to arbitrate is preempted. What has been
preempted are categorical refusals to enforce agreements
that would be otherwise be enforceable under the FAA."
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.
[This bill] 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. [This bill] 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."
The California Labor Federation, AFL-CIO supports this bill,
arguing that it safeguards employment protections for active
military service members and reserve guard members by ensuring
that any waiver of those rights is knowing, voluntary, and not a
condition of employment. This bill prohibits employers from
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requiring an active or reserve duty service member from waiving
employment rights and protections as a condition of employment.
While this bill does not prohibit employers from using
arbitration agreements, it does take necessary steps to ensure
that California's active military service members and reserve
guard members have full protection and access to all remedies
under the law.
The California Employment Lawyers Association supports this
bill, stating "This bill will help shift back the balance of
power, that is now increasingly within the hands of the
employer, so that workers have have some meaningful choice in
how disputes are to be resolved and that corporations are held
accountable for their wrongdoing. These are bedrock principles
that must be upheld in order to preserve the integrity of our
justice system. Indeed, the Supreme Court has repeatedly made
clear that arbitration is a matter of consent and not coercion.
This bill follows this guiding principle in order to ensure that
arbitration agreements are, in fact, made voluntarily and
without the coercive threat of losing one's employment. This
bill creates no new substantive rights or remedies. Rather, it
simply ensures full enforcement of the employment laws already
on the books to help our service men and women. No principle is
more basic to our constitutional system than that a person who
has been hurt deserves his or her day in court."
Arguments in Opposition
In addition to the preemption arguments discussed above,
opponents raise several other objections with this bill.
First, they note that existing law already mandates that all
employment arbitration agreements, not just those for certain
employees, be conscionable. Courts have repeatedly upheld
mandatory arbitration agreements that are consented to by the
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employee as a condition of employment. See Armanderiz v.
Foundation Health Psychcare Services, Inc. 24 Cal.4th 83 (2000);
Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010); Gilmer
v. Interstate/Johnson Lane Corporation, 111 S.Ct. 1647 (1991).
However, the courts do recognize that an employee does not have
the bargaining power to negotiate terms of the contract and,
therefore, the courts have set forth mandatory provisions that
must be included in the arbitration agreement to make the
agreement fair. Arbitration agreements that have not included
these mandatory provisions have regularly been struck down as
unconscionable.
Next, opponents state that critics of arbitration have often
alleged employers obtain some favorable advantage in arbitration
because they pay for the arbitration and are often a "repeat
player" so the arbitration provider wants to ensure their
continued business. They claim that this allegation is
factually unsupported.
Opponents also cite to studies that they claim prove that
arbitration is the only avenue of justice for low-wage employees
because attorneys will not take their case. They claim that
multiple scholars have found that employees who earn mid- to
lower-level wages simply cannot obtain legal representation in
court and cannot afford to pursue a case on his/her own.
Banning mandatory arbitration agreements for members of the
military forces will eliminate this cost-effective avenue of
justice for such individuals.
Finally, opponents argue that this bill places employers in a
"litigation predicament," noting that in 2014, members of the
military were added as a protected classification under the Fair
Employment and Housing Act for purposes of employment
discrimination with the enactment of AB 556 (Salas). Opponents
argue that if employers inquire into the status of the applicant
for purposes of complying with this bill and specifically ask
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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 this bill. Opponents state that such a predicament is
entirely unfair to the employer and will create a worse
litigation environment and result in a lack of job creation.
Some veterans groups, including the American Legion - Department
of California, oppose this bill and express concerns about
unintended consequences: "An employer will now have [two] types
of employees, veterans who, if hired, would not be required to
sign an agreement not to sue and non-veteran employees who can
be required to sign an arbitration agreement. Because of this
disparity in treatment based upon military service, we believe
most employers, once they become aware of this law, would decide
not to hire veterans and would only hire non-veterans and there
would be no way to determine if that was the reason veterans
weren't hired."
Related and Prior 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 pending
on the Assembly Floor.
AB 465 (Roger Hernández) of 2015 was substantially similar to
this bill, and would have prohibited any person from requiring
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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), Chapter 910, Statutes of 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), Chapter 385, Statutes of 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.
Committee Staff Comment
This bill was previously heard in the Assembly Judiciary
Committee. For a more thorough discussion of some of the legal
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issues raised by this bill, including the federal preemption
arguments, please see that Committee's policy analysis of this
bill.
REGISTERED SUPPORT / OPPOSITION:
Support
California Employment Lawyers Association
California Labor Federation
California Professional Firefighters
Consumer Attorneys of California
Consumers for Auto Reliability and Safety
National Guard Association of California
Opposition
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Agricultural Council of California
American Insurance Association
American Legion-Department of California
AMVETS, Department of California
Association of California Insurance Companies
California Association of County Veterans Service Officers
California Chamber of Commerce
California Employment Law Council
California Farm Bureau Federation
California League of Food Processors
California Manufacturers & Technology Association
California New Car Dealers Association
California Newspaper Publishers Association
California State Commanders Veterans Council
Civil Justice Association of California
Military Officers Association of America, California Council
Chapter
National Federation of Independent Business
Oxnard Chamber of Commerce
Property Casualty Insurers Association of America
Rancho Cordova Chamber of Commerce
Redondo Beach Chamber of Commerce & Visitors Bureau
Securities Industry and Financial Markets Association
South Bay Association of Chambers of Commerce
TechNet
VFW-Department of California
Vietnam Veterans of America-California State Council
West Coast Lumber & Building Material Association
Western Growers Association
Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091
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