The Unruh Civil Rights Act provides that all persons within the jurisdiction of this state are entitled to full and equal accommodations in all business establishments regardless of their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status.

This bill would require a waiver of a legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity, to be knowing and voluntary, in writing, and expressly not made as a condition of entering into a contract for goods or services or as a condition of providing or receiving goods and services. The bill, among other things, would require a person who seeks to enforce a waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the act to have the burden of proving that the waiver was knowing and voluntary and not made as a condition of the contract or of providing or receiving the goods or services. The bill would provide that, with certain exceptions, it applies to any agreement to waive a legal right, penalty, remedy, forum, or procedure for a violation of the act, including an agreement to accept private arbitration, entered into, altered, modified, renewed, or extended on or after January 1, 2017. The bill would provide that nothing in these provisions shall prohibit a person from knowingly and voluntarily entering into binding arbitration.

The bill also would make findings and declarations.

Existing law specifies those types of orders and judgments from which an appeal may be taken in arbitration proceedings.

This bill would make technical, nonsubstantive changes to these provisions.

ASSEMBLY THIRD READING

ATR Bill Id:AB 2667

Author:(Thurmond)

As Amended Ver:May 19, 2016

Majority vote

SUMMARY: Limits, but does not prohibit, certain contractual waivers of California's civil rights statutes. Specifically, this bill:

1. Prohibits a person from requiring another person – as a condition of entering into a contract for goods and services – to waive any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act (Unruh Act), including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any court or other governmental entity.
2. Prohibits a person from refusing to enter into a contract with, or refuse to provide goods or services to, another person on the basis that the other person refuses to waive any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Act, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity.
3. Provides that any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Act that is required as a condition of entering into a contract for goods or services shall be deemed involuntary, unconscionable, against public policy, and unenforceable. Provides that this does not affect any legal right, penalty, forum, or procedure which state or federal law prohibits waiver. Additionally provides that nothing in this subdivision shall affect the enforceability or validity of any other provision of the contract.
4. Requires any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Act to be knowing and voluntary, and in writing, and expressly not made as a condition of entering into a contract for goods or services, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity, so long as those rights, penalties, forums, or procedures are waivable under state or federal law.
5. Provides that any person who seeks to enforce a waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Act shall have the burden of proving that the waiver was knowing and voluntary and not made as a condition of the contract or of providing or receiving the goods or services.
6. Provides that the foregoing protections apply to any agreement to waive any legal right, penalty, remedy, forum or procedure for a violation of the Unruh Act entered into, altered, modified, renewed, or extended on or after January 1, 2017.
7. Clarifies that nothing in this act prohibits a person from knowingly and voluntarily entering into binding arbitration.
8. Provides that the foregoing provisions are severable, and that injunctive relief and other remedies are available for violations of these provisions.
9. Makes various legislative findings and declarations.

EXISTING LAW:

1. Establishes the Unruh Act, which provides that all persons in California are free and equal, regardless of a person's sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status, and everyone is entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments. (Civil Code Section 51.)
2. Establishes the California Arbitration Act which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except such grounds as exist at law or in equity for the revocation of any contract. (Code of Civil Procedure Section 1280 et seq.)
3. Similarly establishes the Federal Arbitration Act (FAA) which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except such grounds as exist at law or in equity for the revocation of any contract. (9 United States Code Section 1 et seq.)
4. Permits arbitrators to disregard the law and/or the evidence in rendering their decisions. Awards may be enforced by the court, even if they are legally and factually erroneous. (Moncharsh v. Heily & Blase et al (1992) 3 Cal.4th 1.)
5. Allows private arbitrators to issue binding decisions that are legally enforceable but essentially not reviewable by a court; there is no appeal from an arbitrator's decision to a public court unless the arbitration agreement expressly provides for judicial review. (Crowell v. Downey Community Hospital Foundation (2002) 95 Cal. App. 4th 730; Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
6. Allows arbitrators to conduct arbitrations without allowing for discovery, complying with the rules of evidence, or explaining their decisions in written opinions. (Code of Civil Procedure Sections 1283.1, 1282.2, 1283.4.)
7. Provides that a court may vacate an arbitrator's decision if the award was procured by corruption, fraud or other undue means; there was corruption in any of the arbitrators; the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator, or other specified conditions. (Code of Civil Procedure Section 1286.2.)

FISCAL EFFECT: None.

COMMENTS: The Unruh Civil Rights Act. California law has long afforded its residents with broad protection against unreasonable, arbitrary, or invidious discrimination based on personal characteristics. Enacted in 1958, the Unruh Act is a cornerstone of antidiscrimination law in California that prohibits business establishments from denying equal accommodations and services on the basis of sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status. Yet, the true scope of Unruh Act is even broader. The Unruh Act has been consistently interpreted to cover all arbitrary and intentional discrimination. In recent years, the Legislature has enacted several bills amending the Unruh Act to expressly cover new classifications: AB 1400 (Laird), Chapter 420, Statutes of 2005, added marital status and sexual orientation; AB 887 (Atkins), Chapter 719, Statutes of 2011, added gender identity and gender expression; SB 559 (Padilla), Chapter 261, Statutes of 2011, added genetic information; and most recently, SB 600 (Pan), Chapter 282, Statutes of 2015, added citizenship, primary language, and immigration status.

Consistent with California's goals of affording its residents with broad protection against unreasonable, arbitrary, or invidious discrimination, this bill bolsters the current antidiscrimination statutory framework and imposes limits on certain contractual agreements that seek to undermine the state's statutory scheme that provides vital civil rights to California residents. Simply put, this bill ensures that all Californians enjoy the full benefit of the rights, penalties, remedies, forums, and procedures established by the Unruh Act and that individuals shall not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers. This bill does not bar arbitration or other waiver agreements. Indeed, this bill has been amended to clarify that nothing in the bill prohibits a person from knowingly and voluntarily entering into binding arbitration. This bill merely requires that waivers knowing and voluntary, so long as those rights, penalties, forums, or procedures are waivable under state or federal law. Additionally, this bill prohibits waivers that are required of the consumer as a condition of entering into a contract for goods and services.

A recent three-part New York Times series has highlighted the harms that forced arbitration inflicts on Americans every single day. The stories are based on thousands of court records, interviews with lawyers, judges, arbitrators and the people who have been affected by forced arbitration, in 35 states - including California. Forced arbitration clauses are routinely inserted into the fine print of contracts that people must sign to buy a product or service or get a job.

Proponents of the bill contend that, in their experience, private arbitration is an "anything-goes" private justice industry which can be costly and unreceptive to consumers. There is little, if any, regulation, oversight or legal accountability of arbitrators to the parties, or the public. Surprisingly to some, arbitrators are not regulated in any fashion; they need not be trained in the law, or render a decision consistent with the evidence presented to them, or even apply the law in a particular dispute. Opponents assert that the restrictions on waivers in this bill are likely preempted by the Federal Aviation Administration (FAA) because this bill conflicts with the FAA's policy of encouraging arbitration and disapproving special impediments to the enforcement of arbitration contracts.

This bill essentially has an identical framework to AB 2617 (Weber), Chapter 910, which was signed by the Governor in 2014, and has not been found to be preempted. In 2014, the Governor signed AB 2617 which limits certain contractual waivers under the Ralph Civil Rights Act and the Bane Civil Rights Act – a statutory scheme designed to protect individuals from hate crimes. This bill replicates the framework enacted under AB 2617. This Committee is unaware of any court decision that has found AB 2617 to be preempted. Additionally, this Committee is unaware of any pending litigation challenging AB 2617 on any grounds, including preemption.

This bill appears to be carefully crafted to focus on general contract formation issues that are not subject to preemption under the FAA. Enacted in 1947, the Federal Arbitration Act generally provides that an arbitration agreement "shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 United States Code Section 2.) Supporters and opponents debate about whether this bill is pre-empted by the FAA. Based on an analysis conducted by the Assembly Judiciary Committee (Committee), it appears that this bill does not interfere with the fundamental attributes of arbitration, and thus, is unlikely to be preempted by the FAA, as interpreted by the Supreme Court. Additionally, no court decision has been brought to the attention of the Committee or discovered in the Committee's own research that lends support to such a far-reaching view of FAA pre-emption.

Analysis Prepared by: Eric Dang / JUD. / (916) 319-2334 FN: 0003003

ASSEMBLY THIRD READING

ATR Bill Id:AB 2667

Author:(Thurmond)

As Amended Ver:

Majority vote

SUMMARY: Limits, but does not prohibit, certain contractual waivers of California's civil rights statutes. Specifically, this bill:

1. Prohibits a person from requiring another person—as a condition of entering into a contract for goods and services—to waive any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any court or other governmental entity.
2. Prohibits a person from refusing to enter into a contract with, or refuse to provide goods or services to, another person on the basis that the other person refuses to waive any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity.
3. Provides that any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act that is required as a condition of entering into a contract for goods or services shall be deemed involuntary, unconscionable, against public policy, and unenforceable. Additionally provides that nothing in this subdivision shall affect the enforceability or validity of any other provision of the contract.
4. Requires any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act to be knowing and voluntary, and in writing, and expressly not made as a condition of entering into a contract for goods or services, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity.
5. Provides that any person who seeks to enforce a waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act shall have the burden of proving that the waiver was knowing and voluntary and not made as a condition of the contract or of providing or receiving the goods or services.
6. Provides that the foregoing protections apply to any agreement to waive any legal right, penalty, remedy, forum or procedure for a violation of the Unruh Civil Rights Act entered into, altered, modified, renewed, or extended on or after January 1, 2017.
7. Provides that the foregoing provisions are severable, and that injunctive relief and other remedies are available for violations of these provisions.
8. Makes various legislative findings and declarations.

EXISTING LAW:

1. Establishes the Unruh Civil Rights Act (Unruh), which provides that all persons in California are free and equal, regardless of a person's sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status, and everyone is entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments. (Civil Code Section 51.)
2. Establishes the California Arbitration Act which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except such grounds as exist at law or in equity for the revocation of any contract. (Code of Civil Procedure Section 1280 et seq.)
3. Similarly establishes the Federal Arbitration Act (FAA) which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. Section 1 et seq.)
4. Permits arbitrators to disregard the law and/or the evidence in rendering their decisions. Awards may be enforced by the court, even if they are legally and factually erroneous. (Moncharsh v. Heily & Blase et al (1992) 3 Cal.4th 1.)
5. Allows private arbitrators to issue binding decisions that are legally enforceable but essentially not reviewable by a court; there is no appeal from an arbitrator's decision to a public court unless the arbitration agreement expressly provides for judicial review. (Crowell v. Downey Community Hospital Foundation (2002) 95 Cal. App. 4th 730; Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
6. Allows arbitrators to conduct arbitrations without allowing for discovery, complying with the rules of evidence, or explaining their decisions in written opinions. (Code of Civil Procedure Sections 1283.1, 1282.2, 1283.4.)
7. Provides that a court may vacate an arbitrator's decision if the award was procured by corruption, fraud or other undue means; there was corruption in any of the arbitrators; the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator, or other specified conditions.  (Code of Civil Procedure Section 1286.2.)

FISCAL EFFECT: None.

COMMENTS: The Unruh Civil Rights Act. California law has long afforded its residents with broad protection against unreasonable, arbitrary, or invidious discrimination based on personal characteristics. Enacted in 1958, the Unruh Civil Rights Act (Unruh Act) is a cornerstone of antidiscrimination law in California that prohibits business establishments from denying equal accommodations and services on the basis of sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status. Yet, the true scope of Unruh Act is even broader. The Unruh Act has been consistently interpreted to cover all arbitrary and intentional discrimination. In recent years, the Legislature has enacted several bills amending the Unruh Act to expressly cover new classifications: AB 1400 (Laird), Chapter 420, Statutes of 2005 added marital status and sexual orientation; AB 887 (Atkins), Chapter 719, Statutes of 2011 added gender identity and gender expression; SB 559 (Padilla), Chapter 261, Statutes of 2011 added genetic information; and most recently, SB 600 (Pan), Chapter 282, Statutes of 2015 added citizenship, primary language, and immigration status.

Consistent with California's goals of affording its residents with broad protection against unreasonable, arbitrary, or invidious discrimination, this bill bolsters the current antidiscrimination statutory framework and imposes limits on certain contractual agreements that seek to undermine the state's statutory scheme that provides vital civil rights to California residents. Simply put, this bill ensures that all Californians enjoy the full benefit of the rights, penalties, remedies, forums, and procedures established by the Unruh Act and that individuals shall not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers. This bill does not bar arbitration or other waiver agreements. This bill merely requires that waivers are knowing and voluntary. Additionally, this bill prohibits waivers that are required of the consumer as a condition of entering into a contract for goods and services.

A recent three part New York Times series has highlighted the harms that forced arbitration inflicts on Americans every single day. The stories are based on thousands of court records, interviews with lawyers, judges, arbitrators and the people who have been affected by forced arbitration, in 35 states - including California. Forced arbitration clauses are routinely inserted into the fine print of contracts that people must sign to buy a product or service or get a job.

Proponents of the bill contend that, in their experience, private arbitration is an "anything-goes" private justice industry which can be costly and unreceptive to consumers. There is little, if any, regulation, oversight or legal accountability of arbitrators to the parties, or the public. Surprisingly to some, arbitrators are not regulated in any fashion; they need not be trained in the law, or render a decision consistent with the evidence presented to them, or even apply the law in a particular dispute. Opponents assert that the restrictions on waivers in this bill are likely preempted by the FAA because the bill conflicts with the FAA's policy of encouraging arbitration and disapproving special impediments to the enforcement of arbitration contracts.

This bill essentially has an identical framework to AB 2617 (Weber), Chapter 910 which was signed by the Governor in 2014, and has not been found to be preempted. In 2014, the Governor signed AB 2617 which limits certain contractual waivers under the Ralph Civil Rights Act and the Bane Civil Rights Act – a statutory scheme designed to protect individuals from hate crimes. This bill replicates the framework enacted under AB 2617. This Committee is unaware of any court decision that has found AB 2617 to be preempted. Additionally, this Committee is unaware of any pending litigation challenging AB 2617 on any grounds, including preemption.

This bill appears to be carefully crafted to focus on general contract formation issues that are not subject to preemption under the FAA. Enacted in 1947, the Federal Arbitration Act generally provides that an arbitration agreement "shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 United States Code Section 2.) Supporters and opponents debate about whether this bill is pre-empted by the FAA. Based on an analysis conducted by the Committee, it appears that the bill does not interfere with the fundamental attributes of arbitration, and thus, is unlikely to be preempted by the FAA, as interpreted by the Supreme Court. Additionally, no court decision has been brought to the attention of the Committee or discovered in the Committee's own research that lends support to such a far-reaching view of FAA pre-emption.

Analysis Prepared by: Eric Dang / JUD. / (916) 319-2334 FN: 0002802

Date of Hearing: April 26, 2016

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 2667

Author:(Thurmond) – As Amended Ver:March 15, 2016

SUBJECT: UNRUH CIVIL RIGHTS ACT: MANDATORY WAIVERS OF LEGAL RIGHTS AND PROTECTIONS

KEY ISSUE: SHOULD THE LEGISLATURE LIMIT CERTAIN CONTRACTUAL AGREEMENTS THAT FORCE CALIFORNIA RESIDENTS TO WAIVE THEIR RIGHTS UNDER THE STATE’S CORNERSTONE ANTI-DISCRIMINATION LAW, WHICH PROHIBITS BUSINESSES FROM DENYING EQUAL ACCOMMODATION AND SERVICES ON THE BASIS OF PERSONAL CHARACTERISTICS—SIMILAR TO A FRAMEWORK ADOPTED BY THE LEGISLATURE AND SIGNED BY THE GOVERNOR AIMED AT PROTECTING CALIFORNIA’S HATE CRIME LAWS?

SYNOPSIS

In 2014, Governor Brown signed into law AB 2617 (Weber, Chap. 910, Stats. 2014), which limits, but does not prohibit, certain contractual waivers of rights under the Ralph Civil Rights Act and the Bane Civil Rights Act, California’s statutory scheme designed to protect individuals from hate crimes. Replicating the framework enacted under AB 2617, this bill similarly limits, but does not prohibit, certain contractual waivers of rights under California’s Unruh Civil Rights Act (Unruh), the State’s cornerstone antidiscrimination law which prohibits business establishments from denying equal accommodations and services on the basis of personal characteristics, including sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status. Simply put, this bill ensures that all Californians enjoy the full benefit of the rights, penalties, remedies, forums, and procedures established by the Unruh and that individuals shall not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers. Although this bill still allows such waivers, it would require that the waivers be knowing and voluntary. Additionally, this bill prohibits waivers that are required as a condition of entering into a contract for goods and services.

Supporters of the bill, including its co-sponsors, the NAACP- California State Conference and the Consumer Attorneys of California, contend that when consumers are able to enforce their civil rights in court, the individual, as well as society as a whole, benefits. Beginning with Brown v. Board of Education, civil rights lawsuits have proven to be a powerful—and sometimes the only—available tool in the fight to ensure equal opportunity for all and have enacted significant changes in society. The recent three part New York Times series has highlighted the harms that forced arbitration inflicts on Americans every single day. This bill, similar to AB 2617, ensures that California residents can enjoy the full bulwark of rights provided under California’s civil rights laws.

Opponents of the bill, consisting of various business interests led by the Chamber of Commerce, primarily contend that this bill is likely pre-empted by the Federal Arbitration Act (FAA) because it discriminates against arbitration clauses and disfavors arbitration generally. Additionally, opponents argue that arbitration benefits consumers, and this bill will result in increased litigation costs to businesses.

SUMMARY: Limits, but does not prohibit, certain contractual waivers of California’s civil rights statutes. Specifically, this bill:

1. Prohibits a person from requiring another person—as a condition of entering into a contract for goods and services—to waive any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any court or other governmental entity.
2. Prohibits a person from refusing to enter into a contract with, or refuse to provide goods or services to, another person on the basis that the other person refuses to waive any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity.
3. Provides that any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act that is required as a condition of entering into a contract for goods or services shall be deemed involuntary, unconscionable, against public policy, and unenforceable. Additionally provides that nothing in this subdivision shall affect the enforceability or validity of any other provision of the contract.
4. Requires any waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act to be knowing and voluntary, and in writing, and expressly not made as a condition of entering into a contract for goods or services, including the right to file and pursue a civil action or complaint with, or otherwise notify, the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any other governmental entity.
5. Provides that any person who seeks to enforce a waiver of any legal right, penalty, remedy, forum, or procedure for a violation of the Unruh Civil Rights Act shall have the burden of proving that the waiver was knowing and voluntary and not made as a condition of the contract or of providing or receiving the goods or services.
6. Provides that the foregoing protections apply to any agreement to waive any legal right, penalty, remedy, forum or procedure for a violation of the Unruh Civil Rights Act entered into, altered, modified, renewed, or extended on or after January 1, 2017.
7. Provides that the foregoing provisions are severable, and that injunctive relief and other remedies are available for violations of these provisions.
8. Makes the following legislative findings and declarations:
9. The Legislature finds and declares that it is the policy of the State of California to ensure that all persons have the full benefit of the rights, penalties, remedies, forums, and procedures established by the Unruh Civil Rights Act and that individuals shall not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers.
10. It is the purpose of this act to ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Unruh Civil Rights Act, including any provision that has the effect of limiting the full application or enforcement of any right, remedy, forum, or procedure available under the Unruh Civil Rights Act, is a matter of voluntary consent, not coercion.

EXISTING LAW:

1. Establishes the Unruh Civil Rights Act (Unruh), which provides that all persons in California are free and equal, regardless of a person’s sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status, and everyone is entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments. (Civil Code Section 51.)
2. Establishes the California Arbitration Act which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except such grounds as exist at law or in equity for the revocation of any contract. (Code of Civil Procedure Section 1280 et seq.)
3. Similarly establishes the Federal Arbitration Act (FAA) which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. Section 1 et seq.)
4. Provides that trial by jury is an inviolate right and shall be secured to all. (Cal. Const. Article 1, Section 16.)
5. Permits arbitrators to disregard the law and/or the evidence in rendering their decisions. Awards may be enforced by the court, even if they are legally and factually erroneous. (Moncharsh v. Heily & Blase et al (1992) 3 Cal.4th 1.)
6. Allows private arbitrators to issue binding decisions that are legally enforceable but essentially not reviewable by a court; there is no appeal from an arbitrator's decision to a public court unless the arbitration agreement expressly provides for judicial review. (Crowell v. Downey Community Hospital Foundation (2002) 95 Cal. App. 4th 730; Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
7. Permits enforcement of private arbitration agreements that preclude not only access to the courts but also access to other governmental bodies responsible for enforcing state laws, such as administrative complaint procedures regarding employment laws. (Sonic-Calabasas A, Inc. v. Moreno, 174 Cal. App. 4th 546 (2009), rev. granted, 99 Cal. Rptr. 3d 866 (2009).)
8. Allows arbitrators to conduct arbitrations without allowing for discovery, complying with the rules of evidence, or explaining their decisions in written opinions. (Code of Civil Procedure Sections 1283.1, 1282.2, 1283.4.)
9. Permits arbitrations to be conducted in private with no public scrutiny. (Ting v. AT&T (2002) 182 F.Supp. 2d 902 (N.D. Cal.), affirmed, 319 F.3d 1126 (9th Cir 2003).)
10. Allows arbitrators substantial, if not absolute, immunity from civil liability for acts relating to their decisions, even in the case of bias, fraud, corruption or other violation of law. (Baar v. Tigerman (1983) 140 Cal. App. 3d 979.)
11. Provides that a court may vacate an arbitrator's decision if the the award was procured by corruption, fraud or other undue means; there was corruption in any of the arbitrators; the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator, or other specified conditions.  (Code of Civil Procedure Section 1286.2.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: The Unruh Civil Rights Act. California law has long afforded its residents with broad protection against unreasonable, arbitrary, or invidious discrimination based on personal characteristics. Enacted in 1958, the Unruh Civil Rights Act (Unruh Act) is a cornerstone of antidiscrimination law in California that prohibits business establishments from denying equal accommodations and services on the basis of sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status. Yet, the true scope of Unruh Act is even broader. The Unruh Act has been consistently interpreted to cover all arbitrary and intentional discrimination. (See In re Cox (1970) 3 Cal.3d 205, 212.)

In recent years, the Legislature has enacted several bills amending the Unruh Act to expressly cover new classifications: AB 1400 (Laird, Chap. 420, Stats. 2005) added marital status and sexual orientation; AB 887 (Atkins, Chap. 719, Stats. 2011) added gender identity and gender expression; SB 559 (Padilla, Chap. 261, Stats. 2011) added genetic information; and most recently, SB 600 (Pan, Chap. 282, Stats. 2015) added citizenship, primary language, and immigration status.

Consistent with California’s goals of affording its residents with broad protection against unreasonable, arbitrary, or invidious discrimination, this bill bolsters the current antidiscrimination statutory framework and imposes limits on certain contractual agreements that seek to undermine the state’s statutory scheme that provides vital civil rights to California residents.

Simply put, this bill ensures that all Californians enjoy the full benefit of the rights, penalties, remedies, forums, and procedures established by the Unruh Act and that individuals shall not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers. Although this bill still allows such waivers, it would require that waivers are knowing and voluntary. Additionally, this bill prohibits waivers that are required of the consumer as a condition of entering into a contract for goods and services.

Application of the Unruh Act. Given that one of the policy questions behind this bill is whether Californians should not be coerced into waiving rights and privileges attached to their civil rights (including the remedies, the forums, and the procedures established under Unruh, and the ability to pursue a civil action or complaint with, or otherwise notify the Attorney General or any other public prosecutor, or law enforcement agency, the Department of Fair Employment and Housing, or any court or other government entity), a few real life examples that demonstrate the importance of Unruh seem appropriate:

• Angela Washington was in need of medical care. Because she was a minor at the time, her father contacted a physician on her behalf to schedule a medical visit. The physician agreed to treat Angela the following day. Both Angela and her father are black. On the day of the appointment, the physician refused to provide medical treatment because of Angela’s and her father’s race. Angela and her father filed a complaint against the doctor for an Unruh violation and prevailed. (Washington v. Blampin (1964) 226 Cal.App.2d 604.)
• Birgit Koebke was an avid golfer. In fact, she paid $18,000 in membership fees to join her local country club, which provides a golf course, clubhouse, and dining room. Members of the country club (and their spouses) are allowed to play golf at the club as often as they wish without paying any additional fees; guests of members pay a green fee. A few years after joining the club, Birgit started a relationship with Kendall French; the two later became domestic partners. Kendall is also an avid golfer. After several failed attempts by the couple to have the club extend its spousal privileges to Kendall, the couple filed a complaint against the club for an Unruh violation. (Koebke v. Bernardo Heights Country Club (2005) 36 Cal.4th 824.)
• Lydia Ortiz Hagberg was a member of a bank in Pasadena. One day, she went to her branch to cash a check issued to her by a different bank. The check appeared smudged, but she presented her driver’s license, her ATM card, and the account printout from the issuing bank to the teller. When she presented the smudged check, the teller had the impression that the check was counterfeit. The teller spoke to her direct supervisor who agreed that something was suspicious. The supervisor called the issuing bank to see if the check was fake. Then, the regional manager got involved. The supervisor told her regional manager that she was told that the check is a fake. While the supervisor called the police, the regional manager called the issuing bank to confirm one-last-time that the check is fake; the regional manager was told that the check was indeed, real. The regional manager tried to cancel the police call, but by then, it was too late because the police had arrived. The police stopped and searched Lydia, and then handcuffed her. As Lydia was being placed under arrest, the teller said to Lydia that she “looked like a criminal.” Lydia, who is Hispanic, filed a complaint against the bank for an Unruh violation. (Hagberg v. California Federal Bank (2004) 32 Cal.4th 350.)

It seems safe to say that in these three cases, the agreement between the business establishment (i.e. the medical office, the country club, and the bank) and the consumer (i.e. Angela, Birgit, Lydia) did not include a contractual provision that coerced the consumer to waive her rights, penalties, remedies, forums, or procedures under Unruh. Indeed, if that had been the case, it would be unlikely that these cases would have reached a judge or a courtroom. That is because such waivers – which this bill seeks to limit – would require that violations be decided in secret tribunals, conducted by private judging companies (usually pre-selected and paid for by the alleged wrongdoer), where the decision makers are not required to apply the law or respect the evidence, and the process is not governed by traditional legal principles of due process and the right to appeal.

In support of the bill, the author writes:

Civil rights lack a public forum to ensure enforcement in forced arbitration. When American consumers are able to enforce their civil rights in court, more than just the individual benefits. Beginning with Brown v. Board of Education, civil rights lawsuits have proven to be a powerful—and sometimes the only—available tool in the fight to ensure equal opportunity for all and have enacted significant changes in society. However, in recent years, corporations have used forced arbitration as a tool to evade accountability. As the New York Times reported, in forced arbitration, “they may have found, in the words of one law firm, the ‘silver bullet’ for killing off legal challenges….The beauty of the clauses, the lawyers said, is that often the lawsuit ‘simply goes away.’ (Silver-Greenberg & Corkery, Sued Over Old Debt, and Blocked From Suing Back, N.Y. Times (Dec. 22, 2015).)

The recent three part New York Times series has highlighted the harms that forced arbitration inflicts on Americans every single day. The stories are based on thousands of court records, interviews with lawyers, judges, arbitrators and the people who have been affected by forced arbitration, in 35 states - including California. Forced arbitration clauses are routinely inserted into the fine print of contracts that people must sign to buy a product or service or get a job. Five of the largest banks in the country, PNC, Wells Fargo, JPMorgan Chase, Citigroup and US Bancorp, all use it. A recent petition signed by more than 100,000 consumers and activists called on them to end the practice. And many popular online services—Uber, Airbnb, Netflix, Instagram, Snapchat, and Amazon, for example—all use it as well.

AB 2667 ensures that all Californians enjoy the full benefit of the rights, penalties, remedies, forums, and procedures established by the Unruh Civil Rights Act and that individuals shall not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers.

Private arbitration is essentially unregulated and highly controversial when it is mandatory, rather than voluntary. Proponents of the bill contend that, in their experience, private arbitration is an "anything-goes" private justice industry which can be costly and unreceptive to consumers. There is little, if any, regulation, oversight or legal accountability of arbitrators to the parties, or the public. Surprisingly to some, arbitrators are not regulated in any fashion; they need not be trained in the law, or render a decision consistent with the evidence presented to them, or even apply the law in a particular dispute.

A recent New York Times investigation neatly summarized some of the challenges that ordinary people face when they find themselves compelled into arbitration:

The Times, examining records from more than 25,000 arbitrations between 2010 and 2014 and interviewing hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states, uncovered many troubling cases. Behind closed doors, proceedings can devolve into legal free-for-alls. Companies have paid employees to testify in their favor. A hearing that lasted six hours cost the plaintiff $150,000. Arbitrations have been conducted in the conference rooms of lawyers representing the companies accused of wrongdoing.

Winners and losers are decided by a single arbitrator who is largely at liberty to determine how much evidence a plaintiff can present and how much the defense can withhold. To deliver favorable outcomes to companies, some arbitrators have twisted or outright disregarded the law, interviews and records show.

“What rules of evidence apply?” one arbitration firm asks in the question and answer section of its website. “The short answer is none.”

Like the arbitrator in [a case detailed in the piece], some have no experience as a judge but wield far more power. And unlike the outcomes in civil court, arbitrators’ rulings are nearly impossible to appeal. When plaintiffs have asked the courts to intervene, court records show, they have almost always lost. Saying its hands were tied, one court in California said it could not overturn arbitrators’ decisions even if they caused “substantial injustice.” (Silver-Greenberg & Corkery, In Arbitration, a Privatization of the Justice System, N.Y. Times (Nov. 2, 2015).)

What evidence is presented in an arbitration proceeding may, in fact, be incomplete because the parties in arbitration have no legal right to obtain evidence in support of their claims or defenses, or the claims or defenses of the other party, contrary to the longstanding discovery practice in public courts. Indeed, unlike judges, arbitrators need not explain or defend the rationale for their decisions.

Furthermore, a private arbitrator’s award may be enforced by a court even if the decision is legally and factually erroneous. (Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1.) (See also Crowell v. Downey Community Hospital Foundation (2002) 95 Cal.App.4th 730, allowing private arbitrators to issue binding decisions that are legally enforceable but essentially unreviewable by a court even if the arbitration agreement expressly provides for judicial review.) The Moncharsh court also stated that “arbitrators, unless specifically required to act in conformity with rules of law, may base their decisions upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.” (Id. at pp. 10-11.) Thus, under Moncharsh, there appears to be little need for an arbitrator to justify his or her decision because the law and the evidence need not be followed, and because there is no right for any party to appeal or obtain an independent review of the arbitrator's ruling unless expressly provided by contract.

Regardless of the level or type of mistake, or even misconduct, by the arbitrator, the most relief a court may grant to a party in arbitration is to vacate the award and return the parties to further arbitration, perhaps with the same arbitrator or arbitration company. Under Code of Civil Procedure Section 1286.2, the grounds on which an arbitrator's decision may be vacated are extremely narrow. Under existing law, the arbitrator's award may only be vacated if, for example, (1) the award was procured by corruption, fraud or other undue means; (2) there was corruption in any of the arbitrators; (3) the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator; or other specified conditions. Additionally, if parties are wronged by an arbitrator’s misconduct, generally, the parties cannot obtain a remedy from the arbitrator because arbitrators are afforded substantial, if not absolute, immunity from civil liability for acts relating to their decisions, even in the case of bias, fraud, corruption or other violations of law.

Arbitration's dramatic differences from the public justice system are believed to be appropriate where parties with relatively equal bargaining power have voluntarily chosen to have their dispute and legal rights resolved by a method other than the courts. For example, the use of binding arbitration has a long and honored history in the resolution of labor-management disputes where both parties are repeat-players to whom arbitrators must be equally accountable in order to enjoy repeat employment. Private arbitration becomes more controversial, however, when it is imposed by more powerful parties without negotiation or the right to withhold consent to unfair terms.

This bill essentially has an identical framework to AB 2617 (Weber), which was signed by the Governor in 2014, and has not been found to be preempted. In 2014, the Governor signed AB 2617 (Weber, Chap. 910, Stats. 2014), which limits certain contractual waivers under the Ralph Civil Rights Act and the Bane Civil Rights Act – a statutory scheme designed to protect individuals from hate crimes. This bill replicates the framework enacted under AB 2617. This Committee is unaware of any court decision that has found AB 2617 to be preempted. Additionally, this Committee is unaware of any pending litigation challenging AB 2617 on any grounds, including preemption.

This bill appears to be carefully crafted to focus on general contract formation issues that are not subject to preemption under the FAA. Enacted in 1947, the Federal Arbitration Act generally provides that an arbitration agreement "shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. Section 2.)

Opponents assert that the restrictions on waivers in this bill are likely preempted by the FAA because the bill conflicts with the FAA's policy of encouraging arbitration and disapproving special impediments to the enforcement of arbitration contracts. The coalition of opponents, led by the California Chamber of Commerce, state that:

AB 2667 deems any arbitration agreement made as a condition of a contract for goods and services that waives “any legal right, penalty, forum, or procedure” for Civil Rights violations as unconscionable, involuntary, and against public policy.” This prohibition directly conflicts with rulings from both the California Supreme Court and the United States Supreme Court.

The Federal Arbitration Act and the California Arbitration Act (CAA) evidence a strong preference for the enforcement of arbitration agreements, so long as the underlying contract is fair. In 2011, the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) held that the FAA prohibits states from conditioning the enforceability of an arbitration agreement on the availability of class-wide arbitration procedures as such a requirement would be inconsistent with the intent of the FAA. Specifically, the Court stated that, “[w]hen state law prohibits outrights the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” Id. While the Court specified that states could still regulate contractual defenses, those defenses must be applicable to all contracts, not just targeted at arbitration agreements.

In re-emphasizing this point, the U.S. Supreme Court recently issued another opinion in DIRECTV, Inc. v. Imburgia, that criticized California for discriminating against consumer arbitration agreements. In DIRECTV, a California court had applied a rule of law to invalidate an arbitration agreement, which the Supreme Court had already deemed unlawful. In the opinion authored by Justice Breyer, the Court stated that, because California applied an invalid state law to only arbitration agreements and no other contracts, such an application did not place arbitration agreements on “’equal footing’” with other contracts and, therefore, was preempted by the FAA. DIRECTV, 136 S.Ct. 463 (2015); See also Doctor’s Associates, Inc. v. Cassarotto, 517 U.S. 681 (1996) (striking down a state requirement for a special notice required only for arbitration agreements, not contracts in general, as preempted by the FAA).

Additionally, in August 2015, the California Supreme Court issued its decision in Sanchez v. Valencia Holding Co., LLC 61 Cal.4th 899, in which Justice Goodwin Liu delivered the opinion of the court and held that the Consumer Legal Remedies Act (CLRA), which prohibited any waiver of the provisions of that section, including the right to pursue a class action, was preempted by the FAA. The Court determined that the anti-waiver provisions under the CLRA that barred class action waivers interfere with the “fundamental attributes of arbitration, such as speed and efficiency, and thus disfavors arbitration as a practical matter.” Sanchez, 61 Cal.4th at 923-924.

The holdings in recent United States and California Supreme Court decisions are not what the opposition suggests. Supporters and opponents debate about whether this bill is pre-empted by the Federal Arbitration Act (FAA). Accordingly, a brief review of the recent court decisions on the subject is in order.

In 2005, the California Supreme Court held that in certain adhesive take-it-or-leave-it consumer contracts, a contractual provision requiring the consumer to waive class-action is unconscionable and void. This is known as the Discovery Bank rule. (36 Cal. 4th 148, 159.)

In the well-known Concepcion decision, the U.S. Supreme Court struck down the Discovery Bank rule. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344-47.) In that case, Vincent and Liza Concepcion entered into a cellphone contract that required claims to be brought in an “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” (Id. at 336.) Relying on Discovery Bank, the Concepcions challenged the class-action waiver as an unconscionable contract provision. (Id. at 338.) In abrogating the Rule, the Court held that the Rule stood “as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” because it “interferes with fundamental attributes of arbitration.” (Id. at 344-47.)

Although the Supreme Court has not defined a “fundamental attribute of arbitration,” the Court did say that there were potential advantages of arbitration: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolved specialized disputes. (Id. at 348.) Indeed, the Court analogized to several examples on the kinds of rules or laws that would amount to “interference” with the “fundamental attribute of arbitration.” For example, a rule to require arbitration agreements and proceedings to provide judicially-monitored discovery, or to follow the Federal Rules of Evidence would clearly violate the FAA. (Id. at 342.) In those instances, those additional protections and procedures—admirable as they are—would increase costs, reduce efficiency and speed, and prevent an arbitrator from applying the rules he or she wants to apply; accordingly, states and courts cannot create such rules. Relying on these principles, parties have argued—similarly to the opponents of this bill—that anything that interferes with arbitration is preempted by the FAA, as interpreted under Concepcion; however, this argument is mistaken.

This bill does not interfere with the fundamental attributes of arbitration, and thus, is unlikely to be preempted by the FAA, as interpreted by Concepcion. Contrary to what the opponents of this bill may argue, this bill does not stop parties from going to arbitration, increase the costs of arbitration, reduce the efficiencies of arbitration, or dictate the rules of an arbitral proceeding. This bill merely requires that if a California resident is required to waive his or her rights penalties, remedies, forums, and procedures established by the Unruh Civil Rights Act, the waiver must be voluntary, and not coerced. Additionally, this bill prohibits waivers that are required of the consumer as a condition of entering into a contract for goods and services.  Given that this bill applies to all contracts and agreements entered into after January 1, 2017, and not just arbitration agreements, this bill does not appear to discriminate against arbitration clauses; in other words, this bill seems to place arbitration agreements on equal footing with other contracts, not in violation of the FAA.

The Supreme Court’s recent holding in DIRECTV does not support the argument that the FAA has more preemptive force. Last year, the United States Supreme Court issued a ruling in DIRECTV, Inc. v. Imburgia (2015) 577 U.S. __. Although opponents of this bill argue that DIRECTV strengthens their argument that the bill is preempted by the FAA, the Court’s narrow decision in that case does not go so far. In that case, Amy Imburgia and Kathy Greiner entered into a service agreement with DIRECTV in 2007—after Discovery Bank (2005), but before Concepcion (2011). In that service agreement, some of the terms provided that if the “law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision is unenforceable. At the time of this agreement, a waiver of class arbitration was unenforceable (see Discovery Bank). In 2008, a legal dispute arose between the parties and litigation ensued. The litigation did not reach the California Court of Appeal until 2014—after Concepcion (2011). In 2014, our California Court of Appeal held that since the term “law of your state” meant the body of law in 2007 (before Concepcion prohibited class arbitration waivers), the “law of your state” included a prohibition of classwide arbitration waivers – notwithstanding Concepcion. When this case was appealed to the United State Supreme Court last year, the Supreme Court held that the “law of your state” included, simply, the body of law after Concepcion. Although some find this decision of retroactive application troubling, the DIRECTV decision merely re-applies Concepcion, and does not create a substantially new body of law. Since this bill survives Concepcion, this bill would appear to survive DIRECTV.

This bill does not violate the principle established under Sanchez v. Valencia Holding Co., LLC. (2015) 61 Cal.4th 889. In that case, the California Supreme Court held that the Consumer Legal Remedies Act (CLRA)’s rule, which prohibits class action waivers outright, is preempted by the FAA. However, this bill does not prohibit waivers outright – indeed, as previously mentioned, this bill still allows parties to go to arbitration. This bill merely requires waivers of certain rights and privileges under the Unruh Civil Rights Act to be voluntary, and not coerced. Additionally, this bill prohibits waivers to the extent that they are required as a condition of entering into a contract for goods and services. Accordingly, this bill does not violate the Sanchez principle.

This bill defines the level of consent that is necessary to support the waiver of rights, without prohibiting or disfavoring arbitration in violation of the FAA. This bill seeks to establish general contract principles about the level of consent needed to support a waiver of rights—more specifically, it seeks to ensure that agreements to waive important statutory rights are made knowingly and voluntarily, and are not required to be a condition of entering into a contract for goods or services.

Federal law does not preempt states from enacting basic protections around the formation of contracts. While federal preemption is broad, states are permitted to set standards around fair contracting. No court has suggested that the FAA compels anyone to enter into an involuntary arbitration contract. Unconscionability is often applied by courts to invalidate contracts, including arbitration agreements, where a waiver of rights is required as a condition of entering into a contract. This bill does 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. (1989) 489 U.S. 468; Mastrobuono v. Shearson Lehman Hutton, Inc.(1995) 514 US 52. Furthermore, in Concepcion, the U.S. Supreme Court explicitly left room for states to regulate the formation of arbitration agreements to address matters of consent. (131 S.Ct. 1740; see Footnote 6.) Consequently, AB 2667 does not appear to run afoul of Concepcion because it addresses in a broad and general way the concerns that attend contracts of adhesion — that is, that the contract is entered into knowingly and voluntarily and not as a condition of entering into a contract for goods or services.

Furthermore, this bill does not seek to bar arbitration or other waiver agreements; it simply makes it unlawful to seek an unknowing and involuntary waiver of rights or procedures regarding abuse laws prior to a dispute arising. No court decision has been brought to the attention of the Committee or discovered in the Committee's own research that lends support to such a far-reaching view of FAA pre-emption.

This bill appears to address the Governor’s concerns that were raised in his veto message of Assembly Bill 465. Opponents of this bill point to the fact that this bill is similar to AB 465, which was vetoed by the Governor. The Governor’s veto message provides the following:

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., Armendariz v. Foundation Health Psychcare Services, Inc. 24 Cal.4th 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 a 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.

This bill appears to be specifically targeted to address the Governor’s concern of crafting a more specific and targeted approach. Moreover, as previously mentioned, the recent Supreme Court and California Supreme Court decisions do not further limit California’s ability to regulate in this area of the law.

ARGUMENTS IN SUPPORT: According to the Consumer Attorneys of California, a co-sponsor of this bill, AB 2667 protects the rights of victims of Unruh Civil Rights abuses. In support, they write:

The rights protected by virtue of the historic Unruh Civil Rights Act, one of the past century’s most treasured statutes, hand in the balance. The Unruh Civil Rights Act is rendered effectively toothless when the rights granted therein can be arbitrated away in silence without the standard due process of law that we hold dear. While voluntary arbitration agreements are appropriate in many instances, preemptively forcing a person to give up their rights to take a civil rights case to court as a condition of receiving a good or service is involuntary and coercive.

American Civil Liberties Union echoes the sentiments about the harm that mandatory arbitration agreements imposes on consumers, by writing:

Enforcement of civil rights laws has become increasingly frustrated by the pervasive use of contractual waivers that consumers are forced to agree to as a condition of doing business with many companies, including contracts that require mandatory private arbitration. Private arbitration contracts strip victims of their constitutional right to seek redress in court and their legal right to the protection of the laws….Not surprisingly, many observers believe this process stacks the deck in favor of the business that writes the contract, selects and pays the arbitration company, and is the continuing source of repeat business – giving the arbitration company at least the unconscious incentive to favor the business over the consumer. The proponents of private arbitration contend that it is as fair and just as the judicial system while being faster and less expensive for the parties. If that is so, they should have no concern with a bill like this, which simply makes the choice voluntary.

ARGUMENTS IN OPPOSITION: The coalition of opponents, led by the California Chamber of Commerce, also states that this bill will drive up California employers’ litigation costs. In opposition, they write:

Banning pre-dispute arbitration agreements for alleged Civil Rights violations will force consumers into an already overburdened judicial system. Assuming a consumer can find an attorney willing to pursue the case, a consumer will potentially have to wait years for a resolution, as opposed to arbitration that is generally resolved in less than a year.

California’s economic recovery is dependent on its ability to create an environment where job creation can flourish. In the 2014 Chief Executive’s tenth annual survey of CEOs’ opinions of Best and Worst States in which to do business, California was ranked as one of the worst three states in which to do business. The magazine stated: “[a]ccording to Dun & Bradstreet, 2,565 California businesses with three or more employees have relocated to other states between January 2007 and 2011, and 109,000 jobs left with those employers”. Similarly, the American Tort Reform Association’s “Judicial Hellholes Watch List” for 2014/2015 found that California was ranked as having the second worst litigation environment. The Institute for Legal Reform in 2015 ranked California as having the third worst litigation environment.

REGISTERED SUPPORT / OPPOSITION:

Support

NAACP – California State Conference (co-sponsor)

Consumer Attorneys of California (co-sponsor)

Asian Americans Advancing Justice

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Employment Lawyers Association

California Rural Legal Assistance Foundation

California Teamsters Public Affairs Council

Center for Justice & Democracy

Congress of California Seniors

Consumer Federation of California

Engineer & Scientists of California, Local 20, IFPTE Local 20, AFL-CIO

Equality California

International Longshore and Warehouse Union

Mexican American Bar Association

The National Association of Consumer Advocates

The National Consumer Voice for Quality Long-Term Care

The National Lawyers Guild, Labor and Employment Committee

Professional & Technical Engineers, IFPTE Local 21, AFL-CIO

Public Advocates

UNITE-HERE, AFL-CIO

Utilities Workers Union of America, Local 132, AFL-CIO

Opposition

California Chamber of Commerce

American Insurance Association

California Apartment Association

California Association of Health Facilities

California Association of Joint Powers Authorities

California Building Industry Association

California Building Properties Association

California Citizens Against Lawsuit Abuse

California League of Food Processors

California Newspaper Publishers Association

California Professional Association of Specialty Contractors

California Retailers Association

Civil Justice Association of California

National Federation of Independent Business

Oxnard Chamber of Commerce

Southwest California Legislative Council

West Coast Lumber & Building Material Association

Western Growers Association

Analysis Prepared by: Eric Dang / JUD. / (916) 319-2334