California Governor Rejects Major Labor-Backed Legislation; Signs Other Important Measures

In the just-concluded 2015 Legislative Session, California Governor Jerry Brown rejected several priority bills of organized labor. Two of those bills were labeled “Job Killers” by the California Chamber of Commerce. Sixteen Job Killer bills did not get to the Governor’s Desk, while three of them did, but the Governor vetoed two of those three measures. In addition, Governor Brown signed three measures that had support from the business community.

Ban on Arbitration Agreements Rejected (AB 465)
In a major victory against organized labor, the Governor vetoed a bill that would have banned employment arbitration agreements used to address employment disputes. Authored by Assemblyman Roger Hernandez, AB 465 would have deemed arbitration agreements for employment matters that are signed as a condition of employment to be unconscionable, against public policy and, therefore, unenforceable. However, existing contract law already requires all employment arbitration agreements to be freely and mutually executed. Arbitration does not appear to favor employers and many studies show that employment arbitration is more efficient and provides equal success rates for employees. There was significant concern that AB 465 would be pre-empted by federal law and the practical impact of the bill would be to force low-wage workers into overburdened courts.

The following was the Governor’s veto message:

Assembly Bill 465 would outlaw the use of mandatory arbitration agreements as a condition of employment, making California the only state in the country to have this particular prohibition.

I have reviewed in depth the arguments from both sides about the fairness and utility of mandatory arbitration agreements. While most evidence shows that arbitration is quicker and more cost-effective than litigation, there is significant debate about whether arbitration is less fair to employees. The evidence on actual outcomes in arbitration versus litigation is conflicting and unclear, with some studies showing employees receive more in arbitration while other studies show the opposite.

While I am concerned about ensuring fairness in employment disputes, I am not prepared to take the far-reaching step proposed by this bill for a number of reasons.

California courts have addressed the issue of unfairness by insisting that employment arbitration agreements must include numerous protections to be enforceable, including neutrality of the arbitrator, adequate discovery, no limitation on damages or remedies, a written decision that permits some judicial review, and limitations on the costs of arbitration. See, e.g., Armenderiz v. Foundation health Psychcare Services, Inc. 24 Cal4th 83 (2000). If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.

In addition, a blanket ban on mandatory arbitration agreements is far-reaching approach that has been consistently struck down in other states as violating the Federal Arbitration Act (“FAA”). Recent decisions by both the California and United States Supreme Courts have found that state policies which unduly impede arbitration are invalid. Indeed, the U.S. Supreme Court is currently considering two more cases arising out of California courts involving preemption of state arbitration policies under the FAA. Before enacting a law as broad as this, and one that will surely result in years of costly litigation and legal uncertainty, I would prefer to see the outcome of those cases.

For these reasons, I am returning Ab 465 without my signature.

Sincerely, Edmund G. Brown Jr.

Expansion of CFRA Rejected (SB 406)
The Governor vetoed a proposed, significant expansion of the California Family Rights Act. Authored by Senator Hannah-Beth Jackson, SB 406 would have mandated employers to provide up to 24 weeks of protected leave that can be taken each day in as small of increments of one-hour with the threat of litigation and punitive damages for any unintentional misstep. California already has extensive family-related protected leaves of absence. And there are numerous articles and studies that discuss the burden on employers of complying with current CFRA and FMLA requirements. Moreover, CFRA includes a private right of action with the opportunity to obtain compensatory damages, injunctive relief, declaratory relief, punitive damages, and attorney’s fees.  This private right of action creates costly litigation for employers, even when employers take reasonable steps to address abuse under CFRA.

The following was the Governor’s veto message:

I am returning Senate Bill 406 without my signature.

This bill expands the circumstances under which a qualified employee may take up to 12 weeks of unpaid leave under the California Family Rights Act.

I support the author’s efforts to ensure that eligible workers can take leave to care for a seriously ill family member. The expansion provided in this bill, however, creates a disparity between California’s law and the Federal Medical Leave Act and, in certain circumstances, could require employers to provide employees up to 24 weeks of family leave in a 12 month period. I am open to legislation to allow workers to take leave for additional family members that does not create this anomaly.

Sincerely, Edmund G. Brown Jr.

Ban on Salary History Rejected (AB 1017)
An effort to prohibit employers from seeking a job applicant’s prior salary history was vetoed by the Governor. Authored by Assemblywoman Nora Campos, AB 1017 would have precluded an employer from asking or requesting an applicant to disclose his or her prior salary, compensation or benefits under the proponents’ claim that employers will solely base any offer of compensation on the employee’s prior salary. Under the bill, an employer could be subject to litigation under the Labor Code Private Attorneys General Act (PAGA) simply for inquiring into an applicant’s salary history or prior compensation when there may not be any harm to the applicant/employee.

The following was the Governor’s veto message:

I am returning Assembly Bill 1017 without my signature.

This bill would prohibit an employer from seeking salary information from an applicant for employment.

I agree with the sponsors that we must endeavor to ensure that all workers are paid fairly and do not receive a lower wage because of their gender or any other immutable characteristic that has no bearing on how they will perform in their job. This year, I signed SB 358 that gives California the strongest equal pay law in the nation. This bill, however, broadly prohibits employers from obtaining relevant information with little evidence that this would assure more equitable wages. Let’s give Sb 358 a chance to work before making further changes.

Sincerely, Edmund G. Brown Jr.

Promoting Gender Pay Equity (SB 358)
The business community backed legislation to bring clarity to California’s decades-old “fair pay act.” Authored by Senator Hannah-Beth Jackson, SB 358 prohibits an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for “substantially similar work” when viewed as a composite of skill, effort, and responsibility. Prior language concerning the “same establishment” requirement is now considered as a possible bona fide factor.

Combatting Wage Theft (SB 588)
The business community worked out amendments to a measure to provide the California Labor Commissioner with substantial, additional powers to address the growing problem of wage theft in California. Authored by Senate President pro tempore Kevin de Leon, SB 588 provides extensive new powers to the California Labor Commissioner to enforce judgments against an employer arising from the employer’s nonpayment of wages for work performed in California. Essentially, the new law authorizes the Labor Commissioner to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment pursuant to a writ of execution.

Modest PAGA Reform (AB 1506)
In a major victory, a measure strongly backed by the business community was enacted that will limit certain types of lawsuits involving employee wage statements. Authored by Assemblyman Roger Hernandez, AB 1506 provides that an employer has the right to cure a violation of the requirement that an employer provide its employees with the inclusive dates of the pay period and the name and address of the legal entity that is the employer on an itemized wage statement before an employee may bring a civil action under California’s Private Attorneys General Act. The new law provides that a violation of these requirements shall only be considered cured upon a showing that the employer has provided a fully compliant, itemized wage statement to each aggrieved employee.

Chris Micheli is a Principal with Aprea & Micheli, Inc. and serves as a lobbyist for CompTIA in California. He can be contacted at (916) 448-3075 or cmicheli@apreamicheli.com