BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       SB 1241|
          |Office of Senate Floor Analyses   |                              |
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                                UNFINISHED BUSINESS 


          Bill No:  SB 1241
          Author:   Wieckowski (D) 
          Amended:  8/29/16  
          Vote:     21 

           SENATE JUDICIARY COMMITTEE:  5-1, 4/26/16
           AYES:  Jackson, Hertzberg, Leno, Monning, Wieckowski
           NOES:  Anderson
           NO VOTE RECORDED:  Moorlach

           SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           SENATE FLOOR:  25-13, 5/12/16
           AYES:  Allen, Beall, Block, De León, Galgiani, Glazer, Hall,  
            Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara,  
            Leno, Leyva, McGuire, Mendoza, Mitchell, Monning, Pan, Pavley,  
            Roth, Wieckowski, Wolk
           NOES:  Anderson, Bates, Berryhill, Cannella, Fuller, Gaines,  
            Huff, Moorlach, Morrell, Nguyen, Nielsen, Stone, Vidak
           NO VOTE RECORDED:  Liu, Runner

           ASSEMBLY FLOOR:  Not available

           SUBJECT:   Employment contracts:  adjudication:  choice of law  
                     and forum


          SOURCE:    Author


          DIGEST:  This bill prohibits employers, in contracts entered  
          into, modified, or extended on or after January 1, 2017, from  
          requiring an employee who resides and works in California, as a  
          condition of employment, to agree to a provisions that either:  
          (1) requires the employee to adjudicate outside of California a  








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          claim arising in California; or (2) deprives the employee of the  
          substantive protection of California law with respect to a  
          controversy arising in California.  This bill provides that such  
          a provision is voidable by the employee. If such a provision is  
          rendered void at the employee's request, then the matter must be  
          adjudicated (meaning litigated or arbitrated) in California and  
          California law shall govern the dispute.  This bill provides a  
          specified exception to these provisions for any employee who is  
          in fact individually represented by legal counsel in negotiating  
          the terms of an agreement and otherwise authorizes a court to  
          award a plaintiff enforcing his or her rights under this bill  
          attorney's fees, as specified.   


          Assembly Amendments narrow the bill by limiting its protections  
          to employment contracts and adding an exemption for employees  
          individually represented by legal counsel, as specified; and  
          make other technical and clarifying changes. 




          ANALYSIS:


          Existing law: 


          1)Permits California courts to exercise jurisdiction on any  
            basis not inconsistent with the state or federal  
            Constitutions.  A court is also authorized to stay or dismiss  
            most actions in which it finds "that in the interest of  
            substantial justice" the action should be heard in a forum  
            outside of California.


          2)Codifies the established doctrine that the courts will not  
            enforce an unconscionable contract.  Specifically, existing  
            law provides that, if a court finds as a matter of law that a  
            contract or any clause of the contract was unconscionable at  
            the time it was made, the court may refuse to enforce the  
            contract or the unconscionable clause.  








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          3)Holds that "unconscionability has both a 'procedural' and a  
            'substantive' element, the former focusing on 'oppression' or  
            'surprise' due to unequal bargaining power, the latter on  
            'overly harsh' or 'one-sided' results."  (Armendariz et al. v.  
            Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th  
            83, 114.)


          4)Holds that forum selection clauses will be enforced only "so  
            long as California consumers will not find their substantial  
            legal rights significantly impaired by their enforcement."  
            "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. The Superior Court of  
            Alameda County (2001) 90 Cal.App.4th 1, 21, 23.)


          5)Provides, with respect to a contract between a contractor and  
            a subcontractor for the construction of a public or private  
            work of improvement in this state, that a provision shall be  
            void and unenforceable if it purports to require any dispute  
            between the parties to be litigated, arbitrated, or otherwise  
            determined outside this state or purports to preclude a party  
            from commencing such a proceeding or obtaining a judgment or  
            other resolution in this state or the courts of this state.  


          6)Provides for a maxim of jurisprudence that "[a]ny one may  
            waive the advantage of a law intended solely for his benefit.   
            But a law established for a public reason cannot be  
            contravened by a private agreement."  


          7)Provides the waiver of certain substantive rights as against  
            public policy, such as a person's rights under the Consumer  
            Legal Remedies Act (Civ. Code Sec. 1751) and a person's rights  
            under state securities laws (Corp. Code Sec. 25701).  Thus,  
            those rights are non-waivable.









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          8)Makes certain other employment contract provisions, such as  
            non-compete clauses, void or voidable as against public  
            policy. (See e.g., Civ. Code Secs. 1670.8, 1751, 1799.207,  
            Bus. & Prof. Sec. 16600; Edwards v. Arthur Andersen LLP (2008)  
            44 Cal.4th 937, Fillpoint, LLC v. Maas, 208 Cal.App.4th 1170,  
            1182-1183.)  


          This bill: 


          1)Adds to the Labor Code a statute prohibiting an employer from  
            requiring an employee who resides and works in California, as  
            a condition of employment, to agree to a provision that would  
            either: 

                 Require the employee to adjudicate outside of California  
               a claim arising in California; or 

                 Deprive the employee of the substantive protection of  
               California law with respect to a controversy arising in  
               California


          1)Provides that any contract provision that violates the above  
            is voidable by the employee and provides that if the provision  
            is rendered void at the employee's request, the matter shall  
            be adjudicated in California and California shall govern the  
            dispute. 


          2)Specifies that for these purposes, adjudication includes  
            litigation and arbitration. 


          3)Provides that in addition to injunctive relief and any other  
            remedies available, a court may award an employee who is  
            enforcing his or her rights under this bill reasonable  
            attorney's fees. 










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          4)Exempts from these provisions any 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)Provides that these provisions apply to a contract entered  
            into, modified, or extended on or after January 1, 2017.


          Background


          As a general matter, arbitrations provide an alternative method  
          of dispute resolution, outside of the courts, wherein a neutral  
          third party, known as the arbitrator, renders a decision after a  
          hearing to which both parties have had an opportunity to be  
          heard. Under California law, there are two distinguishable types  
          of arbitration: judicial arbitration (also known as  
          court-annexed arbitration, governed under Code of Civil  
          Procedure Sections 1141.10 -1141.31) and private arbitrations  
          (also commonly known as "contractual," "voluntary," or  
          "nonjudicial" arbitrations; governed under the California  
          Arbitration Act, Code of Civil Procedure Section 1280 et seq.).   
            


          On March 1, 2016, the Senate Judiciary Committee held an  
          informational hearing on the topic of private or contractual  
          arbitration agreements, entitled The Federal Arbitration Act,  
          the U.S. Supreme Court, and the Impact of Mandatory Arbitration  
          on California Consumers and Employees.  In that hearing, many  
          issues facing consumers and employees who are subject to  
          arbitration clauses contained in standardized,  
          take-it-or-leave-it, or "adhesive," contracts were brought to  
          light.  That hearing also brought to light the various  
          difficulties facing the state in addressing some of the  
          underlying, fundamental harms faced by consumers and employees  
          as a result of federal preemption and U.S. Supreme Court  
          precedent interpreting the Federal Arbitration Act.  A package  
          of arbitration bills, of which this bill is one, arose out of  








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          the hearing, seeking to address various fairness issues  
          surrounding the rules that govern the conduct and operation of  
          arbitrators and arbitrations in this state.   


          Of particular relevance to this bill are issues of fairness  
          surrounding choice of law and choice of forum clauses as a  
          condition of non-negotiable consumer and employment contracts,  
          and, specifically, the ability of a seller or employer to  
          require a California consumer or employee to litigate or  
          arbitrate their claims arising out of California in another  
          state, or pursuant to another state's laws. Generally speaking,  
          California law does not currently prohibit companies or  
          employers from requiring consumers or employees to agree to a  
          non-California forum or to apply non-California law to resolve  
          their disputes. As a matter of case law, such clauses are valid  
          so long as the California consumer or employee "will not find  
          their substantial legal rights significantly impaired by their  
          enforcement."  (America Online, Inc. v. The Superior Court of  
          Alameda County (2001) 90 Cal.App.4th 1, 21, 23.) 


          This bill, as narrowed in the Assembly to address opposition  
          concerns, seeks to generally ensure that California employees  
          cannot be forced to litigate or arbitrate their California-based  
          claims outside of California, under out-of-state laws, as a  
          condition of an employment contract.  Specifically, this bill  
          authorizes an employee who resides and works in California to  
          render void any provision required by an employer in violation  
          of this bill, as a condition of employment, that would either:  
          (1) require the employee to adjudicate outside of California a  
          claim arising in California; or (2) deprive the employee of the  
          substantive protection of California law with respect to a  
          controversy arising in California. Under this bill, if such a  
          provision is rendered void at the employee's request, then the  
          matter must be adjudicated (meaning litigated or arbitrated) in  
          California and California law shall govern the dispute.  This  
          bill exempts from these provisions any employees who are in fact  
          individually represented by legal counsel in negotiating the  
          terms of an agreement, as specified. 










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          Comments


          As stated by the author: 


            SB 1241 focuses in on two harmful kinds of clauses that can  
            appear in an employment contract:


               (1) Choice of  venue  clauses that force a worker into an  
               arbitration in another state, and; 


               (2) Choice of  law  clauses that intentionally require that a  
               different state's laws govern the case.


            [ . . . ] A worker who lives and works in California should  
            never be forced to travel to a different state to exercise  
            rights she has under California law.  


          In support of the bill, the California Employment Lawyers  
          Association writes:


            Increasingly, employers, particularly out-of-state employers,  
            are imposing choice-of-law and forum selection provisions on  
            their California workers in order to: evade California law,  
            make it more difficult for employees to pursue legitimate  
            claims, and ensure that any disputes are decided in a forum  
            that is most favorable to the employer.    [ . . . ]            
                                                                    


            Needless to say, most workers lack the resources to travel  
            across the country-let alone around the world-to pursue an  
            employment claim in another state or country. The problem is  
            particularly acute for lower income workers and disabled  
            workers. Those workers that do have the resources and ability  
            to travel might well find that the protection that they had  








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            under California law does not exist, or is not as  
            comprehensive, in the jurisdiction that will be deciding their  
            dispute. [ . . . ] 


            In [a] recent case, a California employee was fired after  
            speaking to other employees about alleged violations of  
            California's Labor Code and because she refused to sign a new  
            arbitration agreement. Rather than taking her case to court in  
            California, her employer has forced the claim to be arbitrated  
            in New York because of a choice-of-venue provision buried in  
            her new-hire paperwork. 

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified8/31/16)


          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists
          California Dispute Resolution Council
          California Employment Lawyers Association
          Consumer Attorneys of California
          Consumer Federation
          Engineers & Scientists of CA, IFPTE Local 20, AFL-CIO
          Equality California 
          International Longshore and Warehouse Union
          Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
          SAG-AFTRA, AFL-CIO
          Small Business California 
          Teamsters
          UNITE-HERE, AFL-CIO
          Utility Workers Union of America, AFL-CIO


          OPPOSITION:   (Verified8/31/16)


          Civil Justice Association of California









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          Prepared by:Ronak Daylami / JUD. / (916) 651-4113
          8/31/16 22:16:40


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