BILL ANALYSIS Ó
SB 1241
Page 1
SENATE THIRD READING
SB
1241 (Wieckowski)
As Amended August 29, 2016
Majority vote
SENATE VOTE: 25-13
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Judiciary |8-1 |Mark Stone, Alejo, |Wagner |
| | |Chau, Chiu, | |
| | |Gallagher, Holden, | |
| | |Maienschein, Ting | |
| | | | |
| | | | |
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SUMMARY: Allows an employee to void a contractual provision
that requires the employee to adjudicate a legal claim outside
of California, or require the employee to waive his or her
protections under California law. Specifically, this bill:
1)Prohibits an employer from requiring an employee, who
primarily resides and works in California, as a condition of
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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.
2)Provides that any contract that violates 1) above, is voidable
by the employee. If rendered void at the request of the
employee, the matter shall be adjudicated in California and
California law shall govern the dispute.
3)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.
4)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
controversy arising from the employment contract may be
adjudicated or the choice of law to be applied.
5)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
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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 an employer from requiring an employee (who
primarily resides and works in California)-as a condition of
employment-to agree to a provision that would either require the
employee to adjudicate a legal claim outside of California, or
deprive the employee of protection under California law. If an
employee is subject to such a contractual provision during the
course of employment, this bill allows an employee to void those
provisions. If voided, the legal matter may be adjudicated in
California under California law. This bill applies to contracts
commencing after January 1, 2017, and allows a court to award
reasonable attorney's fees to an employee who is enforcing his
or her rights under this bill.
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
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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. Observers correctly note that California courts 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
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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. Since this bill
is aimed at protecting employees who may not have sufficient
bargaining power throughout the employment relationship, 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.
These exemptions, intended to alleviate concerns raised by the
business community, are consistent with the policy goal of this
bill: Californians should be bound by potentially one-sided
terms only if the Californian knowingly and voluntarily agrees
to such terms.
Similarly, this bill allows California employees the choice to
adjudicate their claims outside of California. Although
California law provides broad protections for California
employees, there may be an instance where an employee wants to
adjudicate a claim outside of California or to have another
forum's laws govern the dispute. To that end, this bill allows
an employee subject to such a contractual provision the option
of voiding those outside-of-California clauses. By making these
provisions voidable (rather than void), this bill ensures that
employees are not coerced into signing away their rights under
California law.
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.
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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: 0004949