BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1241| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 1241 Page 2 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. SB 1241 Page 3 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. SB 1241 Page 4 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. SB 1241 Page 5 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 SB 1241 Page 6 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. SB 1241 Page 7 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 SB 1241 Page 8 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 SB 1241 Page 9 Prepared by:Ronak Daylami / JUD. / (916) 651-4113 8/31/16 22:16:40 **** END ****