BILL ANALYSIS �
AB 267
Page 1
Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 267 (Swanson) - As Introduced: February 7, 2011
SUBJECT : Employment contracts.
SUMMARY : Prohibits any choice of law clause, venue-selection
clause, or forum-selection clause in binding employment
materials that are imposed on an employee as a condition of
employment. Specifically, this bill :
1)Makes void and unenforceable as against public policy, the
following clauses contained in any job applications,
employment agreements, employment handbooks or other
statements of employer policies applicable to its employees,
if imposed on an employee as a condition of employment:
a) Choice of law clause that selects a state's law other
than California to govern an employment dispute between an
employer and employee.
b) Venue-selection clause that selects a venue outside of
California for an employee to bring an employment claim
against his/her employer.
c) Forum-selection clause that selects a forum outside of
California for an employee to bring an employment claim
against his/her employer.
2)Specifies that nothing in this bill would prevent an employee
from voluntarily agreeing to a choice of law or forum
selection as long as it is not a condition of employment and
that it is subject to independent consideration.
EXISTING LAW :
1)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.
2)States that existing case law, in which the California Supreme
Court struck down a mandatory arbitration agreement in an
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employment contract as an unconscionable contract of adhesion,
the court held that "unconscionability has both a 'procedural'
and a 'substantive,' element, the former focusing on
'oppression,' or 'surprise' due to unequal bargaining power,
the later on 'overly harsh' or 'one-sided results."
(Armendariz et al. v. Foundation Health Psychare Services,
Inc. (2000) 24 Cal.4th 83.)
3)States that existing case law, in which the appellate court
refused to enforce a forum selection clause in a consumer
contract, the court stated 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.)
FISCAL EFFECT : Unknown
COMMENTS : The California Supreme Court has held that
out-of-state employers who employ individuals in California may
use choice of law and forum selection provisions in their
employment contracts, so long as the forum selected offers the
employee adequate remedies otherwise available to him/her under
California law (see Olinick v. BMG Entertainment, 42 Cal.Rptr.3d
268 ). In this case, a California employee tried to bring an age
discrimination suit under California's Fair Employment and
Housing Act in a California court but was subject to a choice of
law clause and forum selection clause in his employment
contract, which stated that any employment dispute was to be
brought in New York and resolved under New York law. The Court
held that the public policy of California in enforcing its
anti-discrimination statutes under FEHA and the convenience of
the party and witnesses in adjudicating the case in California
do not invalidate the parties' enforceable agreement where the
selected forum affords an adequate remedy to the employee.
Under the United States (U.S.) Constitution and the California
Constitution, a federal or state law may not operate as a
substantial impairment of a contractual relationship (U.S.
Const. art. I, � 10; Cal. Const. art. I, � 9). This bill,
however, does not act to prohibit or impair the contractual
relationship because the contracting parties may still
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voluntarily agree to a choice-of-law clause or forum selection
clause. This bill takes the narrow approach of prohibiting
employers from forcing employees to accept these provisions as a
condition of employment, i.e. the provisions at issue are
declared void and unconscionable only to the extent that they
are required as a condition of employment.
The Federal Arbitration Act (FAA) governs the interpretation of
arbitration agreements and preempts any state law to the
contrary. State law, however, is applicable to an arbitration
case if the law governs issues concerning the validity,
revocability, and enforceability of contracts generally.
Therefore, because this bill states that it is the public policy
of the state that forum selection clauses and choice of law
clauses are unconscionable if imposed on an employee as a
condition of employment, as opposed to prohibiting these clauses
altogether, this bill would not be preempted under the FAA. As
a result, because these clauses are not outright prohibited, an
employer and employee may have the option to bargain over
whether to insert these clauses into an employment contract.
ARGUMENTS IN SUPPORT :
In their letter of support the sponsor of this bill, the
California Employment Lawyers Association (CELA), states that
under current law, employers can require California workers as a
condition of employment to give up the protection of California
law and accept the less protective laws of other States and can
force California workers to travel to other States to resolve
employment disputes that arose in California. Increasingly,
predominately out-of-state employers are using "choice-of-law"
and forum selection clauses to exempt themselves from
California's laws governing employment relationships and to
adopt another State's weaker worker protections, creating an
unfair competitive advantage over employers who remain subject
to the rigorous requirements of California labor and employment
laws. Correcting this problem therefore benefits California
employers as well as employees and contributes to fair
competition in California.
CELA argues that California law is intended to provide a
consistent set of rights and obligations for all California
workers and their employers. However, allowing employers to
impose choice-of-law and forum selection provisions on their
California workers undermines this state's strong labor
protection laws and creates confusion for employees and the
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Courts as to what laws govern the employment relationships that
take place in California and where any related dispute shall be
resolved.
Without any legislation to guide them, California courts have
freely enforced these provisions, allowing out-of-state
employers to evade California labor laws and sending California
workers to Florida, Illinois, New York and Minnesota, even out
of the country, to resolve discrimination claims and other
employment disputes (sometimes under the laws of those
jurisdictions) that arose in California.
Additionally, CELA asserts in their letter of support, that 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 under California law does not exist, or
is not as comprehensive, in the jurisdiction that will be
deciding their dispute.
Finally, CELA feels this bill seeks to correct this injustice by
making clear that any provision in an employment contract that
requires an employee, as a condition of obtaining or continuing
employment, to use a forum other than California, or to agree to
a choice of law other than California law, is void and
unenforceable as against public policy and provides clarity to
the courts, justice to California employees and a more level
playing field for businesses in California.
The Consumer Attorneys of California, state in their letter of
support, this bill protects the rights of California employees
by prohibiting out of state companies who do business in our
state from forcing California employees out of state to enforce
employment rights. Unfortunately, current state law does not
expressly prohibit the practice. In their letter, they site
examples of employees who were forced to travel to enforce their
rights in other states:
Californian forced to New York courts. An older
employee brought an age discrimination claim under the Fair
Employment and Housing Act (FEHA) and a wrongful
termination claim alleging a violation of public policy
against age discrimination. The court affirmed the
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enforcement of a forum-selection and choice of law
provision favoring New York. (Olinick v. BMG.
Entertainment (206) 138 Cal.app.4th 1286)
Californians forced to Massachusetts courts. Two women
filed a complaint against their former employer alleging
employment discrimination. The court upheld a clause
requiring the employees to resolve their claims in
Massachusetts, even though it noted that alleged severe
financial hardship would result, but stated that the
hardship was insufficient to establish that the designated
forum was gravely difficult and inconvenient. (Hopkinson
v. Lotus Development (1995) U.S. Dist. Lexis 8804)
Californian forced to Illinois courts. A California
resident asserting age discrimination claims under FEHA was
forced to seek protection in an Illinois forum when the
court upheld a forum selection clause. (Flake v. Medline
Industries (1995) 882 F.Supp. 947)
ARGUMENTS IN OPPOSITION :
The California Chamber of Commerce argues in their letter of
opposition that this bill is unnecessary and overrides judicial
discretion, stating that under existing law, California
employees are already protected from contractual choice of law
or forum provisions which are unreasonable, unconscionable or
diminish substantially their legal protections in this state
since California courts already have the discretion to deem such
provisions unenforceable.
They also contend that this bill could result in fewer
employment opportunities for Californians in today's global
workplace. Employers and jobs are increasingly mobile and not
constrained by geographical boundaries. They state that
technology allows employers headquartered in other states or
other countries to have increasing flexibility to offer jobs
around the globe and this bill discourages such employers from
offering employment in California if doing so means they travel
across the country or overseas to appear in California courts.
Finally, they state that accepting a choice of forum or law as a
"condition of employment" is tied to a voluntary decision by the
employee to accept an offer of employment or not and this bill
sets a bad precedent for statutory interference with the
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Constitutional right of parties to contract.
The Civil Justice Association of California opposes this bill,
stating they have three primary concerns with the bill. They
feel the bill is unnecessary California residents are already
protected from unreasonable contract provisions and unreasonable
choice of law provisions. Second, they argue that judges should
be allowed to balance factors in individual cases to determine
if a choice of law clause is appropriate and finally they
believe this sets a bad precedent for prohibiting other choice
of law or forum provisions.
PRIOR LEGISLATION :
AB 1043 (Swanson) of 2007, was identical to this bill. The bill
was vetoed by Governor Schwarzengger.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
CA Official Court Reporters Association
California Communities United Institute
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Labor Federation, AFL-CIO
California Employment Lawyers Association (Sponsor)
California Teamsters Public Affairs Council
Consumer Attorneys of California
Equal Rights Advocates
International Longshore and Warehouse Union
Professional and Technical Engineers, IFPTE Local 21
SCOPE, Laborers International Union of North America
UNITE HERE!
United Food and Commercial Workers Region 8 States Council
Utility Workers Union of America, Local 132
Women's Employment Rights Clinic of Golden Gate University,
School of Law
Opposition
California Chamber of Commerce
Civil Justice Association of California
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Analysis Prepared by : Lorie Erickson / L. & E. / (916)
319-2091