BILL ANALYSIS Ó
AB 2879
Page 1
ASSEMBLY THIRD READING
AB
2879 (Mark Stone)
As Amended April 7, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Judiciary |7-3 |Mark Stone, Alejo, |Wagner, Gallagher, |
| | |Chau, Chiu, Cristina |Maienschein |
| | |Garcia, Holden, Ting | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Labor |5-2 |Roger Hernández, Chu, |Patterson, Linder |
| | |McCarty, O'Donnell, | |
| | |Thurmond | |
| | | | |
| | | | |
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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:
AB 2879
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1)Prohibits a person from requiring another person to waive any
legal right, penalty, remedy, forum, or procedure for a
violation of the Military and Veterans Code Section 394
(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
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.
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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.
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.
FISCAL EFFECT: None
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 the Military and Veterans Code Section 394. 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.
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According to the author, 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 federal and state employment rights specifically
established for their protection after being compelled into
arbitration because, for example, the arbitrator in the case did
not apply the law correctly regarding the employer's burden of
proof. The author states: "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 Uniformed Services Employment and Reemployment
Rights Act (USERRA) law, California Military and Veterans Code
Section 394 establishes important job protections and
anti-discrimination provisions for the benefit of military
service members. Federal law, USERRA, prohibits employment
discrimination against a person on the basis of past military
service, current military obligations, or intent to serve. (38
United States Code (U.S.C.) Sections 4301-4333.) Among other
things, USERRA protects civilian job rights and benefits for
veterans and members of the active and reserve components of the
United States (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
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USERRA investigation. (U.S. Department of Labor Web site;
available at
http://www.dol.gov/vets/programs/userra/aboutuserra.htm .)
In addition to USERRA, service members are provided further
protections under California Military and 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 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.
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 with little, if any, regulation, oversight or
legal accountability to the parties or the public. They note
that arbitrators need not be trained in the law, need not render
a decision consistent with the evidence presented to them, and
are not even required to apply the law in a particular dispute.
A recent New York Times investigation neatly summarized some of
the challenges that ordinary people 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. ...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 Web site. "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
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.
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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.
This bill appears to be carefully crafted to focus on general
contract formation issues that are not subject to preemption
under the Federal Arbitration Act (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,
led by the California Chamber of Commerce, 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. Opponents state that:
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
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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. 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
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, this bill does not "outright prohibit the
arbitration of a particular type of claim", the author contends,
nor does it particularly single out arbitration because the
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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).)
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
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
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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, 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:
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
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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.
According to the author, 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
principles to any arbitration or other waiver agreement.
According to the Judiciary Committee, its research did not find
any court decision that lends support to such a far-reaching
view of FAA pre-emption.
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
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 [Fair Employment
and Housing Act] FEHA for purposed of employment
discrimination (AB 556,[( Salas), Chapter 691].
Similar to other protected classification currently in
California law, including age, marital status or
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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.
The April 7, 2016, amendments to the bill clarify that
violations of the proposed prohibitions against requiring
another person to waive any legal right under Section 394 as a
condition of employment are not punishable as a misdemeanor
under current law. Accordingly, the author contends there is
nothing in this bill that requires employers to treat military
service members any differently than they otherwise would be
treated under existing law. Furthermore, there is no need for
the employer 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. Whether
or not an applicant is asked about his or her military status
prior to being offered an employment contract, any waiver of
legal rights that is required as a condition of employment would
be deemed involuntary and made unenforceable under this bill.
Finally, it should be noted that if the applicant wishes to
knowingly and voluntarily waive any legal right with the
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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.
Analysis Prepared by:
Anthony Lew/ JUD. / (916) 319-2334 FN: 0002927