BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1241|
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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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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.
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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.
SB 1241
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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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