BILL ANALYSIS Ó
SB 1241
Page 1
SENATE THIRD READING
SB
1241 (Wieckowski)
As Amended August 19, 2016
Majority vote
SENATE VOTE: 25-13
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+-----------------------+---------------------|
|Judiciary |7-3 |Mark Stone, Alejo, |Wagner, Gallagher, |
| | |Chau, Chiu, Cristina |Maienschein |
| | |Garcia, Holden, Ting | |
| | | | |
|----------------+-----+-----------------------+---------------------|
|Appropriations |12-6 |Gonzalez, Bloom, |Bigelow, Chang, |
| | |Bonta, Calderon, Daly, |Gallagher, Jones, |
| | |Eggman, |Obernolte, Wagner |
| | | | |
| | | | |
| | |Roger Hernández, | |
| | |Holden, Quirk, | |
| | |Santiago, Weber, Wood | |
| | | | |
| | | | |
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SB 1241
Page 2
SUMMARY: Allows a consumer or an employee to void a choice of
venue or choice of law provision that would either require the
consumer or employee to adjudicate a legal claim outside of
California, or require the consumer or employee to waive their
protections under California law. Specifically, this bill:
1)Prohibits a seller from requiring a consumer, as a condition
of entering into a contract, to agree to a provision that
would do either of the following:
a) Require the consumer to adjudicate outside of California
a claim arising in California.
b) Deprive the consumer of the protection of California law
with respect to a controversy arising in California.
2)Provides that any choice of venue or choice of law provision
is voidable, upon request of the consumer who primarily
resides in California, if the provision would do either of the
following:
a) Require the consumer to adjudicate outside of California
a claim arising in California.
b) Deprive the consumer of the protection of California law
with respect to a controversy arising in California.
3)Establishes that if provision described in 2) above, is
rendered void at the request of the consumer, the matter shall
be adjudicated in California and California law shall govern
the dispute.
SB 1241
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4)Allows a court to award a consumer who is enforcing his or her
rights under this act reasonable attorney's fees, in addition
to other remedies available.
5)Prohibits an employer from requiring an employee or job
applicant, as a condition of employment, to agree to a
provision that would do either of the following:
a) Require the employee to adjudicate outside of California
a claim arising in California.
b) Deprive the employee of the protection of California law
with respect to a controversy arising in California.
6)Provides that any choice of venue or choice of law provision
is voidable, upon request of the employee who primarily
resides and works in California, if the provision would do
either of the following:
a) Require the employee to adjudicate outside of California
a claim arising in California.
b) Deprive the employee of the protection of California law
with respect to a controversy arising in California.
7)Establishes that if provision described in 6) above, is
rendered void at the request of the employee, the matter shall
be adjudicated in California and California law shall govern
the dispute.
8)Allows a court to award an employee who is enforcing his or
her rights under this act reasonable attorney's fees, in
addition to other remedies available.
9)Provides that this act does not apply to an employment
contract with an employee who is in fact individually
represented by legal counsel in negotiating the terms of an
agreement to designate either the venue or forum in which a
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controversy arising from the employment contract may be
adjudicated or the choice of law to be applied.
10)Provides that this act does not apply to an employment
contract where the employee was represented by a talent
agency, as defined.
11)Defines adjudication under this act to include litigation and
arbitration.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, any fiscal impact to the courts should be minor.
COMMENTS: According to author, an increasing number of
businesses and employers are imposing choice of venue and choice
of law contractual provisions on Californians in order to evade
California law. These contractual provisions allow businesses
and employer to pick laws or venues of another state (and even
another country) that are favorable to the business interest to
govern a legal dispute if one should arise. Thus, Californians
who are forced to agree to these contractual terms must travel
to other states or countries to litigate or arbitrate a legal
claim. Given the expense and burdens of going to another forum,
this ultimately means that a consumer or an employee is unlikely
to vindicate his or her legal rights.
This bill prohibits a seller or an employer from requiring a
consumer or an employee from agreeing to a provision, as a
condition of entering into a contract, that would either require
the consumer or employee to adjudicate a legal claim outside of
California, or deprive the consumer or the employee of
protection under California law. Additionally, if a consumer or
an employee becomes subject to such contractual provisions
during a contractual relationship with a seller or employer,
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this bill allows a consumer or an employee to void these
provisions so that the legal claim may be adjudicated in
California under California law. This bill applies to contracts
commencing after January 1, 2017, and also allows a court to
award reasonable attorney's fees for a consumer or an employee
who enforces rights under this bill. Under this bill,
adjudication includes litigation and arbitration.
California has a history of protecting against potentially
one-sided contractual arrangements. California has previously
enacted laws restricting the use of choice of law and forum
selection clauses in contracts. (See AB 2781 (Leno), Chapter
797, Statutes of 2006, child support collection choice of law
agreements; AB 268 (Wayne), Chapter 624, Statutes of 2001, sale
of structured settlements received in tort claims choice of law
and forum selection agreements; SB 568 (Sher), Chapter 194,
Statutes of 1997, Uniform Interstate Family Support Act choice
of law; AB 1051 (Eastin), Chapter 582, Statutes of 1991,
construction subcontracts cannot be litigated or arbitrated
outside this state.) Indeed, many California courts recognize
this strong public policy. For instance, "California courts
will refuse to defer to the selected forum if to do so would
substantially diminish the rights of California residents in a
way that violates our state's public policy." (America Online,
Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 12.) This is
because "[o]ur law favors forum selection agreements only so
long as they are procured freely and voluntarily, with the place
chosen having some logical nexus to one of the parties or the
dispute, and so long as California consumers will not find their
substantial legal rights significantly impaired by their
enforcement." (Ibid.) Accordingly, it appears that this bill
is consistent with the Legislature's previous efforts in
protecting Californians from potentially unfair and unreasonable
contracts aimed at protecting consumers and workers.
This bill is consistent with, but not duplicative of, existing
law. Opposition to this bill contends that California courts
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have the authority to refuse to enforce one-sided choice of
venue and choice of law provisions. For example, a court may
invalidate a provision if the inconvenience of the forum is so
grave that it effectively deprives litigants of their day in
court. (The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1,
17.) Additionally, a court may refuse to enforce a choice of
law if another state's laws fundamentally conflict with the
public policy of California. (Washington Mutual Bank v.
Superior Court (2001) 24 Cal.4th 906, 916; see Nedlloyd Lines
B.V. v. Superior Court (1992) 3 Cal.4th 459, 465.) Based on
these rules, the opponents argue that this bill is unnecessary.
Although opponents correctly assert that courts have the
authority to strike down one-sided contracts, it is unclear how
often this actually happens. Under existing law, forum
selection clauses are valid and enforceable unless the
contesting party meets the "heavy burden" of proving that
enforcing the clause would be unreasonable under the
circumstances of a case. (Bancomer v. Superior Court (1996) 44
Cal.App.4th 1450, 1457.) In other words, a consumer or an
employee seeking to invalidate an unfair forum selection clause
must show that adjudicating in another state, or following the
laws of another forum would be unreasonable. Supporters of this
bill sensibly argue that this burden is unrealistic. Supporters
argue that many consumers and employees do not have the means to
invalidate one-sided contractual agreements. Additionally,
supporters contend that in consumer contracts where the amount
in controversy is often small, the costs and burdens of
traveling to another forum will exceed the potentially
redressible remedies. Thus, it seems likely that without this
bill, many one-sided clauses will remain in place. Accordingly,
this bill does not appear to be unnecessary, or duplicative of
existing law.
This bill does not apply to employees who are represented by
counsel who have negotiated employment terms. The opposition
raises the concern that this bill would relieve a highly paid
employee-who has more than sufficient bargaining power in
negotiating her employment agreement-of honoring the terms of
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her contract. To address this concern, this bill exempts
employment contracts where an employee is individually
represented by legal counsel in negotiating terms of an
agreement that designate venue or the choice of law, or where
the employee was represented by a talent agency as defined.
Although it is unclear whether this recent amendment alleviates
the opposition's concerns, the amendment addresses the crux of
this bill: Californians should only be bound by these
potentially one-sided terms if the Californian knowingly and
voluntarily wants to leave the state to adjudicate a legal
claim.
This bill exempts an employment contract where the employee is
represented by a talent agency. To address concerns raised by
opponents of the bill, this bill's employment contract
provisions have been amended to exempt a contract for which the
employee was represented by a talent agency.
Similarly, this bill allows California consumers and employees
the choice to adjudicate their claims outside of California.
Although California law provides broad consumer and employee
protections, there might be an instance when a consumer or an
employee would like to have a legal claim be adjudicated outside
of California, or would want to have the laws outside of
California govern a dispute. To that end, this bill allows
California consumers and employees the option to void a choice
of venue and choice of law provision. To ensure that the
protections afforded under this bill are reserved for
Californians, this bill specifically provides that the consumer
or the employee-who is seeking to void a choice of venue or
choice of law provision in a consumer or employment contract as
provided under this bill-must primarily reside in California
(and for the employee, primarily work in California). By making
these provisions voidable (rather than void), this bill ensures
that consumers and employees are not being coerced into signing
away their rights under California law.
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Prior Vetoed Bills: The prohibitions of this bill limiting
choice of law or choice of forum provisions in employment
contracts is similar to a prior bill, AB 267 (Swanson) of 2011,
which was vetoed by Governor Brown.
In vetoing AB 267, Governor Brown stated:
This measure would prohibit employment contracts that
require California employees to agree to the use of
legal forums and laws of other states. Current law
prohibits California employees from being subjected to
laws or forums that substantially diminish their
rights under our laws and I have not seen convincing
evidence that these protections are insufficient to
protect employees in California. Finally, I would
note that imposing this burden could deter out of
state companies from hiring Californians - something
we can ill afford at this time of high unemployment.
Analysis Prepared by:
Eric Dang / JUD. / (916) 319-2334 FN: 0004615