2019 Legislative Wrap Up

Mariko Yoshihara

On October 13^th, Governor Newsom officially cleared his desk of all 1,042 bills sent to him this year by the legislature. Ultimately, Governor Newsom signed 83.5% of the bills presented to him. While this was in fact a lower signing rate than his predecessor, Governor Brown, who signed 86.5% of all bills before him in his second stint as governor, Newsom remarkably signed in his first year close to 70 bills that were previously vetoed by Brown.

On CELA-sponsored and priority bills, we had an overwhelmingly successful year with Governor Newsom at the helm. Of the eight bills that made it to his desk, the governor signed six, two of which were previously vetoed by Brown. The significance of these six bills cannot be overstated. As described below, these new measures will have an enormous impact on strengthening workers’ rights and their ability to seek justice.

CELA-Sponsored and Priority Legislation Signed Into Law

1. Forced Arbitration. AB 51 (Author: Assembly Member Gonzalez; Sponsors: California Labor Federation, Consumer Attorneys of California)

This bill was a reintroduction of AB 3080, which Governor Brown vetoed last year. This bill adds Section 12953 to the Government Code and Section 432.6 to the Labor Code to prohibit employers from forcing employees to waive any right, forum, or procedure under the Fair Employment and Housing Act (FEHA) or the Labor Code as a condition of employment. The bill also prohibits employers from retaliating against a worker who refuses to sign an arbitration agreement.

What is unique about AB 51 from other state laws and prior legislation that have been challenged under the Federal Arbitration Act (FAA), is that this bill would not impact the enforceability of any arbitration agreement. The FAA’s key provision states that an arbitration agreement must be treated as “valid, irrevocable, and enforceable” (9 U. S. C. §2). Under AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 339 (2011) and its progeny, the U.S. Supreme Court has interpreted this provision to mean that states cannot place limitations on how those agreements are enforced under state law. However, this bill only governs when a worker chooses not to enter into an arbitration agreement. If a worker refuses to sign an arbitration agreement,there would be no issue of contract formation or enforceability, because there would simply be no agreement. Furthermore, this bill would not frustrate the purpose of the FAA because that purpose follows the basic precept, emphasized numerous times by the Supreme Court, that arbitration “is a matter of consent,not coercion.” Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468; Mastrobuono v. Shearson Lehman Hutton, Inc., 514 US 52.

Thus, the key to avoiding FAA preemption is by using AB 51 to ensure that the employee does not sign the arbitration agreement in the first place, rather than challenging an agreement that has already been signed.

How employee advocates use AB 51 will be critical to its success and is key to avoiding the inevitable argument of FAA preemption. The following practice tips are designed to help.

Practice tips:

• This bill applies to employment contracts entered into, modified, or extended on or after January 1, 2020.
• The main difference between this bill and AB 3080 last year, is that this version does not state that an arbitration agreement is unenforceable if it is required as a condition of employment. In fact, the bill states that “Nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act.” Therefore, using AB 51 to invalidate an otherwise lawfully executed arbitration agreement will run afoul of the intent of this bill and, importantly, the Federal Arbitration Act.
• The two main components of this bill are as follows:
  • The bill states that it is an unlawful employment practice to require an employee to sign any sort of waiver of any right or forum or procedure under the Labor Code or under the Fair Employment and Housing Act. Obviously, this would include, although not explicitly, an arbitration agreement that waives an employee’s right to go to court or an administrative agency.
  • The bill also states that it is unlawful for an employer to retaliate against an employee for refusing to consent to such a waiver.
• Therefore, the way to combat forced arbitration under AB 51 is to bring injunctive relief actions to challenge employer policies or practices that effectively require employees to sign arbitration agreements as a condition of employment. For example, “opt-outs” or other kinds of agreements that require employees to take affirmative action in order to preserve their rights are explicitly considered a “condition of employment” and would violate this new section. In order to challenge these kinds of practices, the bill specifically provides for injunctive relief. A court may award a prevailing plaintiff enforcing their rights under this section reasonable attorney’s fees.
• Additionally, we must be educating employees that they now have the right to refuse to consent to an arbitration agreement and be ready to assist and defend employees if they are denied employment or retaliated against for exercising this right.
• Please contact mariko@cela.org if you are considering an alternative theory under AB 51 to address forced arbitration.

2. Strategic Non-Payment of Arbitration Fees. SB 707 (Authors: Senators Wieckowski and Hertzberg; Sponsors: California Employment Lawyers Association, Consumer Attorneys of California) 

This bill revises the California Arbitration Act (Cal. Code Civ. Proc. § 1280 et seq.) to provide procedural remedies for consumers and employees when companies strategically withhold payment of arbitration fees in order to stall or impede the arbitration proceedings. This bill also seeks to address the issue of diversity in the arbitration industry by requiring arbitration companies to report the same kind of demographic information about their arbitrators that the Judicial Council is required to report about state court justices and judges.

Under this bill, a company’s failure to pay arbitration initiation fees within 30 days of their due date will constitute a breach of the arbitration agreement, which then affords the employee or consumer the options (1) to withdraw from arbitration and proceed in court or (2) to compel arbitration under the contract.

In the case where a company fails to pay fees required to continue the arbitration, consumers and employees have four options. First, they may withdraw from arbitration and proceed in court. Second, they may continue arbitration if the arbitrator agrees to proceed without payment, in which case the arbitration provider can collect its fees from the company after the proceeding ends. Third, they may petition the court to compel the company to pay the fees. Finally, they may pay the company’s unpaid fees in order to continue the arbitration and recover the amount at the end of the proceeding regardless of the outcome of the case.

As an additional deterrent, this bill authorizes arbitrators and courts to sanction companies that refuse to pay the required arbitration fees, up to and including terminating sanctions.

Practice tips:

• The framework for SB 707 is firmly grounded in case law finding that companies that refuse or delay payment in arbitration are in default of arbitration and no longer can compel the claimant back to arbitration. In Sink v. Aden Enterprises, Inc., 352 F.3d 1197 (9th Cir. 2003) and Brown v. Dillard’s, Inc., 430 F.3d 1004 (9th Cir. 2005), the Ninth Circuit established that non-payment of arbitration fees is a material breach of the party’s obligations under the agreement and puts that party in default of the arbitration. At that point, the defaulting party has waived its right to compel arbitration because § 3 of the FAA states that the claim can be “referable to arbitration under such an agreement” only if the party “is not in default in proceeding with such arbitration.” SB 707 codifies this principle into state law so that the parties can avoid unnecessary litigation and, more importantly, are incentivized to cooperate with the arbitration process on time in order to avoid breaching the arbitration agreement in the first place.
• In Brown, the court observed that allowing a party to compel arbitration notwithstanding its breach of the arbitration agreement would set up a perverse incentive scheme that would enable “employers [to] have an incentive to refuse to arbitrate claims brought by employees in the hope that the frustrated employees would simply abandon them.” (Brown, 430 F.3d at 1010.) Similarly, in Sink, the court explained that the same offending party could default a second time if compelled back to arbitration, and this cycle could continue, “resulting in frustration of the aggrieved party’s attempts to resolve its claims.”
• This bill places the decision-making power in the hands of the non-defaulting party (i.e., the employee or consumer). It permits the non-defaulting party to either continue with the arbitration or have the dispute heard in a court of appropriate jurisdiction. If the matter is moved to court, the statute of limitations on the claims pleaded (or those that relate back) is tolled as of the date on which the arbitration proceeding was initiated.

3. Harassment and Discrimination Statute of Limitations. AB 9 (Authors: Assembly Members Reyes, Friedman, and Waldron; Sponsors: California Employment Lawyers Association, Equal Rights Advocates, Consumer Attorneys of California)

This bill was a reintroduction of AB 1870, which Governor Brown vetoed last year. This bill extends the time for filing harassment and discrimination employment claims under California’s Fair Employment and Housing Act (“FEHA”) from one year to three years, allowing victims additional time to seek redress.

Practice tips:

• It is important to note that this bill also clarified the relevant dates for purposes of filing a pre-litigation complaint with the Department of Fair Employment and Housing (DFEH) and for purposes of subsequently filing an action in court. For purposes of filing a pre-litigation complaint with the DFEH, a worker has three years to file an intake form with the department. For purposes of filing an action in court, a worker must bring a civil action within one year after the filing of a verified complaint – and the operative date of the verified complaint will relate back to the filing of the intake form.
• Moreover, AB 9 provides that it “shall not be interpreted to revive lapsed claims,” meaning that the extended filing deadline will not apply to any claim that expires before the bill goes into effect on January 1, 2020. In other words, the three-year filing deadline will apply only to claims arising on or after January 1, 2019.

4. No Rehire Clauses. AB 749 (Author: Assembly Member Stone; Sponsors: California Employment Lawyers Association, Equal Rights Advocates)

This bill bans “No Rehire” clauses that restrict employment opportunities for workers settling sexual harassment or other employment disputes. The bill will be codified at Section 1002.5 of the Code of Civil Procedure. These clauses are particularly egregious when they require the victim of discrimination or sexual harassment to forgo continuing employment, while the offender remains in the job. Such clauses therefore dissuade employees from reporting workplace misconduct in the first place for fear of lasting repercussions on their careers.

The only law that currently addresses restrictions on future employment is Business & Professions Code Section 16600, which voids any contract that prohibits a person from engaging in a lawful profession, trade, or business. The California Supreme Court has found that this statute “evinces settled legislative policy in favor of open competition and employee mobility” (Edwards v. Arthur Anderson LLP (2008). Recently, the Ninth Circuit held that this section prohibits enforcement of any settlement agreement that imposes a “substantial restriction” on a person’s ability to practice a lawful occupation. (See Golden v. CEP Medical Group (2018)).

However, Section 16600 is not specific to no rehire clauses in settlement agreements, and appellate courts have been inconsistent in determining what constitutes a “substantial” restriction on a person’s right to pursue a lawful calling. [Cf. Golden, supra, striking down a no-rehire provision, with Brown v. State Personnel Board (2012), upholding an equally sweeping restriction.]

For years, the Equal Employment Opportunity Commission has warned that “no rehire” clauses are retaliatory against employees who come forward with claims of harassment or discrimination. Because of this, the EEOC’s own settlement standards and procedures state that a worker cannot be required as a condition of settlement to agree to refrain from seeking future employment with the employer.

Practice tips:

• Any “no rehire” provision in a settlement agreement entered into on or after January 1, 2020, will be void as a matter of law and against public policy.
• Between now and the end of the year, consider advising defendants that you will wait to sign any settlement agreements until the new year unless no rehire provisions are removed.
• This measure does not prohibit any agreement to end a current employment relationship (Code of Civil Procedure 1002.5(b)(1)(A)).
• To address concerns that this bill could protect employees who engaged in sexual harassment and then filed a defamation claim against the employer, the bill allows “no rehire” clauses in a settlement agreement if the employer has made a good faith determination that the person engaged in sexual harassment or sexual assault.

5. Late Paychecks. AB 673 (Author: Assembly Member Carrillo; Sponsors: California Employment Lawyers Association, Legal Aid at Work, Center for Workers’ Rights, California Rural Legal Assistance Foundation)

This bill, amending Labor Code Section 210, allows workers to recover penalties through the Labor Commissioner for late paychecks. Current law sets out penalties for late paychecks, but those penalties can be recovered only by the Labor Commissioner on behalf of the State. AB 673 allows the worker to recover this penalty through the Labor Commissioner while also preserving the ability to enforce the penalty through PAGA.

Practice tips:

• This bill adds some new enforcement mechanisms for ensuring that workers are paid on time. The bill gives new authority for workers and the Labor Commissioner to recover penalties under Section 210. A worker now can go through an administrative hearing Section 98 and recover penalties under Section 210 or the Labor Commissioner can recover the penalties through the issuance of a citation or pursuant to Section 98.3.
• Importantly, the bill makes explicit that the penalties can either be statutory penalties, recovered by the worker through an administrative hearing, or the penalties can be civil penalties, recovered by the Labor Commissioner or through a PAGA action (Labor Code Section 210(c)).

6. Codification of Dynamex. AB 5 (Author: Assembly Member Gonzalez; Sponsor: California Labor Federation)

This bill codifies the ABC test, as established in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, as the standard for determining whether a worker is an employee or an independent contractor under all provisions of the Labor Code and the Unemployment Insurance Code. This bill was amended to exempt specific categories of workers from the ABC test (and restoring the Borello test for these professions), including professionals in the financial services industry (insurance agents, accountants, securities brokers, investment advisors), direct-sales salespersons, real estate licensees, workers providing hairstyling or barbering services, and those performing work under a contract for professional services that require an active license, like law, medicine, dentistry, architecture, engineering, and accounting. Bookmark Section 2750.3 of the Labor Code for reference.

Practice tips:

• Pay attention to which parts of the bill are retroactive and which parts are prospective. Provisions in the bill which outline criteria that professionals and business entities must adhere to in order to be subject to the test under Borello are retroactive. The bill also clarifies that the application of the ABC test beyond the wage orders will be applied prospectively. Worker’s compensation requirements under the bill are not retroactive and will be effective July 1, 2020.
• There are additional tests and alternative tests that apply to specific industries. Conduct a case-by-case analysis to determine the applicable criteria that must be met, summarized here.
• The following professions will be governed by the Borello test:
  • Insurance agents and brokers
  • Physicians, surgeons, dentists, podiatrists, and psychologists
  • Lawyers
  • Architects
  • Engineers
  • Veterinarians
  • Private investigators
  • Accountants
  • Securities broker-dealers and investment advisors
  • Direct salespersons
  • Commercial fishermen
  • Real estate licensees
  • Repossession agents
• The employment status of the following professionals will be determined by the test adopted in Borello if the hiring entity can demonstrate certain additional criteria, as provided in the bill:
  • Marketing professionals
  • Administrators of human resources
  • Travel agents
  • Graphic designers
  • Grant writers
  • Fine artists
  • Enrolled agents
  • Payment processing agents
  • Still photographers and photojournalists, as long as the professional maintains no more than 35 accepted and licensed content submissions by a single publication or stock photography company per year.
  • Freelance writers, editors, and newspaper cartoonists, as long as the professional maintains no more than 35 accepted content submissions by a single publication or company per year.
  • Licensed cosmetologists, barbers, estheticians, electrologists, and manicurists as long as these professionals issue the salon owner a Form 1099 if they rent their business space, processes their own payments, are paid directly by their clients, maintain sole discretion regarding the number of clients and which clients they service, have their own book of business, and schedule their own appointments. The provision relating to licensed manicurists will become inoperative on January 1, 2022.
  • A bona fide business contracting with another bona fide business is not subject to the test under Dynamex and instead is governed by the test under Borello if the contracting business can demonstrate that it meets certain additional factors (g., the business service provider is free from control and direction from the contracting business; provides services directly to the contracting business itself, instead of its customers; has a written contract with the contracting business; etc.).
  • Employment status of an individual who is subcontracted by a construction contractor is determined by the test under Borello if the construction contractor demonstrates that certain criteria are met, g., that the subcontract is in writing; the subcontractor is licensed by the Contractors State License Board; the subcontractor has the appropriate business license or business tax registration; the subcontractor maintains a business location separate from the contractor; etc.).
  • Other special criteria also apply to subcontracting for construction trucking services.
  • For the test under Dynamex to be inapplicable to a business entity providing services to a client or business through a referral agency, the agency must meet certain specific criteria under the bill. These services consist of graphic design, web design, photography, tutoring, event planning, minor home repair, moving, home cleaning, errands, event planning, furniture assembly, animal services, dog walking, dog grooming, picture hanging, pool cleaning, or yard cleanup.

CELA-Sponsored and Priority Bills That Were Vetoed

• Retaliation and Whistleblower Protections. AB 403 (Author: Assembly Member Kalra; Sponsors: California Employment Lawyers Association, Santa Clara Wage Theft Coalition) – This bill would extend the statute of limitations for retaliation claims under Labor Code Section 98.7 from 6 months to 2 years and would allow prevailing plaintiffs to recover their attorneys’ fees under Section 1102.5. This is the same bill that was held in the Assembly last year. Status: Vetoed. In his veto message, Governor Newsome urged “the Legislature to consider an approach that is consistent with other anti-retaliation statute of limitations in the Labor Code which are set to one year.” CELA is committed to addressing the governor’s concerns and pursuing this bill again.
• Protections for victims of Domestic Violence and Sexual Assault. AB 1478 (Author: Assembly Member Carrillo; Sponsors: California Employment Lawyers Association, California Conference of Bar Associations) – This bill would provide a private right of action and remedies for an employee who is discriminated or retaliated against by an employer due to the employee’s status as a victim of domestic violence, sexual assault, and stalking. This bill also would entitle a prevailing plaintiff to reasonable attorney’s fees. Status: Vetoed.

For a complete list of labor and employment bills from 2019 and their status, visit https://cela.org/BillsWeAreTracking. And as we start thinking ahead to next year, please contact mariko@cela.org if you have a bill idea that you would like our Legislative Committee to consider for our legislative agenda next year.