BILL ANALYSIS Ó
AB 2879
Page 1
ASSEMBLY THIRD READING
AB
2879 (Mark Stone)
As Amended May 27, 2016
Majority vote
-------------------------------------------------------------------
|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 | |
| | | | |
| | | | |
-------------------------------------------------------------------
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
Page 2
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.
AB 2879
Page 3
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.
AB 2879
Page 4
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." As recently amended, this bill is supported
by a broad range advocates for service members and veterans,
including the National Guard Association of California, American
Legion (Department of CA), AMVETS (Department of CA), Veterans
of Foreign Wars (VFW) (Department of CA), the Military Officers
Association of America, CA Council of Chapters, and others.
Federal law, 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 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. 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. Department of Labor
Web site; available at http://www.dol.gov/vets/programs/userra/
aboutuserra.htm .)
AB 2879
Page 5
In addition to USERRA, service members are provided further
protections under California Military and Veterans Code Section
394. Recent amendments to this bill clarify that California
Military and Veterans Code Section 394 is very similar to the
USERRA because both establish important job protections and
anti-discrimination provisions for military service members.
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 this bill, including the Consumer Attorneys and
the California Labor Federation, among others, contend that
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:
AB 2879
Page 6
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.
AB 2879
Page 7
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 this 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 requirement
AB 2879
Page 8
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, this 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. This bill applies equally to public employers as well
as private employers. Contrary to opponents' characterizations
of this 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 this
AB 2879
Page 9
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, this 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, this 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, this 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
AB 2879
Page 10
of employment. In short, this 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 and thus
AB 2879
Page 11
'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.
Opponents' concern about a "litigation predicament." Opponents
argue that this 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 this bill. They explain their
concerns as follows:
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
AB 2879
Page 12
discrimination claim [under [Fair Employment and Housing
Act] FEHA] 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.
According to the author, 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. Recent amendments to this bill clarify that it is the
policy of California that employers shall not discriminate
against an employee or job applicant on the basis of military
and veteran status, and furthermore, that employers are
prohibited from making any non-job-related inquiry of an
employee or applicant's military and veteran status (except in
order to identify members of the military or veterans for the
purpose of awarding a veteran's preference as permitted by law.)
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
employer, including the right to go to court for an employment
dispute, and it is not a condition of employment, then this bill
does not prohibit such waiver and there is no litigation
predicament.
Analysis Prepared by:
Anthony Lew / JUD. / (916) 319-2334 FN: 0003068
AB 2879
Page 13