Episode 29: Legislative Update II

Welcome to the Workplace, a podcast by Cal Chamber. I'm Erica Frank, Cal Chamber's Executive Vice President and General Counsel. With me on the podcast today are Robert Moutrie, one of our fantastic Cal Chamber policy advocates, and Chris McKayley of the advocacy firm Apria and Michele. Chris is a well known Sacramento lobbyist who is often seen advocating for employers in the Capitol alongside our Cal Chamber staff. Welcome, gentlemen.

Thanks for having us.

Thanks for having us. And thank you for that fantastic introduction.

Absolutely. So it has been a busy couple of weeks recently over at the State Capitol. We had the legislative session winding down. It came to a close. What, at 3 in the morning on Saturday, September 14th? That's correct. So, you know, kind of a late night for the two of you, especially.

Since it started at 10:30 in the morning.

Okay, yes, it was a long session.

And you know, one of those big issues that you all were following up until the end was a huge bill. One of Cal chambers job killers. AB 1066.

That's right. 1066 was one of the last votes.

One of the last votes. So you guys were up there till late in the night or early in the morning, I should say.

We had to wait until the bitter end to ensure its defeat.

Okay, so there you go. You just, the cat just got out of the bag, right? AB 1066, job killer. Huge victory for the business community because dun, dun, dun, the two of you effectively killed the bill.

Well, I don't want to say that Chris and I personally did it with no help. There was a lot of business community weighing in and thankfully, because it was something that would have affected a lot of employers, broadly speaking.

So, Robert, tell me, what did AB 1066 do?

Yeah, AB 1066 was going to increase unemployment costs for all employers across the state. And the way this would have happened is it provided unemployment benefits to any workers in a labor dispute after four weeks. And so that would of course, directly apply to any workplaces that have unions and have labor disputes. But more broadly, because of the way UI is funded across the state, if one employer's payments get too high because they've drained too much out of the fund, the cost is spread to every other employer in the fund. And we saw that as certain to happen because of the amount of people that AB 1066 was going to add to the UI roles. So at that point, it becomes a UI increase to every employer across the state, whether or not you have labor disputes and whether or not you have any of those issues.

So if I was striking, if I was an employee that was on strike because I was upset with something related to my employer, I could then start collecting unemployment insurance because I am striking against my employer, which would then effectually increase costs for all employers.

Yes, because. And this relates to how it's paid, because unemployment is paid by the employer, right through the fund, but by the employer. As one employer's fund was drained by you on strike, it would have spread around.

I think a lot of legislators were sympathetic to the fact that the labor unions often made a claim that, well, this is just going to adversely impact the bad employer. And I think a lot of legislators saw through that argument and believe that in fact it would hit all employers across the board.

And hasn't our UI fund been in trouble before?

Oh, huge trouble. And Chris can give some history here, but we just came out of the red from the last recession and finished paying off our federal loans there. And I don't have the numbers in front of me, but I want to say that that was kind for $10 billion roughly in loans from the federal government. And the state paid interest on those, though the employers paid the principal. So both the state and employers really felt the weight of that. And that was a very important point for a lot of legislators and policymakers looking at AB 1066 and thinking, we don't want to dig ourselves back into that hole. You know, should a recession come, will this make it worse? The objective answer was yes, and this was recognized. The LA Times editorial board, the Department of Finance experts looking at this saw that risk as very real and it was very effective in policymakers.

And I think in all of the coalition meetings of a large group that Rob led, he often started not just with our coalition letter, but also that LA Times editorial which essentially said, we believe in protecting workers, we believe in unions, but this bill is the wrong approach because of the precarious state of our UI Fund. And since a lot of legislators were in fact here when we first borrowed against it, and certainly as we've been paying back, there was also a lot of sympathy there because that $10 billion was paid for by the employer community, even though the state's general fund picked up the interest payments.

Do you guys think even though this bill is dead for now, and that is the verbiage that we use over at the state Capitol when a bill does not pass, do you think it's going to have another life come next year, or do you think it's pretty much a done done?

No, I think it's alive and well. First of all, procedurally all bills in the first year of the session continue on to the second year. So it's not dead. And in fact, it's on its last steps before hitting the governor's. When the bill first came up Friday night, as Rob and I were there watching the floor session and the vote, the initial roll call was 15i votes, needing 21 for passage and 14 no votes. So we felt pretty good. But throughout the evening, as organized labor in this state worked diligently to get the bill over the top, it ended up with 19i votes. So merely two votes shy of enough votes to make it there. And we figured that despite the opposition from the Department of financ, at best, 50, 50, whether or not Governor Newsom would veto this measure. So at least we got a brief respite, but we expect to pick up the fight in January.

Yeah, and really in a big way, because they got to 19 in the end. I think the proponents are not going to take 19 as a sign of certain defeat. Right. They think a little more work, give another go. So I think we will see it next time.

Maybe if we had held them to 15, they would have given up.

Yeah, guys, come on.

We will do better next time. You have our word.

We're going to pull off some of those folks.

Well, congratulations, you guys. Fantast. So let's talk a little bit more. AB5. AB5 is a welcomed guest to this podcast. We've been talking about it quite a bit. It's the bill that seeks to codify the California Supreme Court Dynamics decision, as we are supposed to be pronouncing it, not Dynamax, as I was told.

We thought that we would confuse legislators if we walked into their office and say, we're here to talk to you about the Dynamics case. They said, I know Dynamex. Which one's that?

That's so true. So, Chris, what happened? I mean, this was a huge issue over the last couple weeks on the podcast, and Jennifer Barrera, our executive vice president and head of our policy unit, talked quite a bit about it. What happened with the Dynamex bill?

Well, it passed.

And the governor is committed to signing it. So much beyond that. Well, on the first day that the new legislature got sworn in, back In December of 2018, as you'll recall, Assemblywoman Gonzalez introduced AB5, obviously the fifth bill to be introduced at the start of the year with what about 1800 assembly bills introduced this year? And this was the fifth one. Of course, at that time, it was merely intent language. The negotiations really took on A life of their own. During the summer months where there were efforts on two fronts. The Cal Chamber led effort to have a broad business to business exemption. And then of course, many industries were there trying to get their own specific carve outs. There were 30 plus that ended up in the final version of the bill.

Wow. So when we talk about 30 plus carve outs.

Yes.

What do you mean by that?

Well, yes, we always had to explain to legislators the carve out or exemption didn't mean that your workers were automatically deemed independent contractors. It just meant that you were to utilize the old borrello test. In 1989, the Cal Supreme Court decided SG Borrello & Sons versus the Department of Industrial Relations. Although it was in the worker comp context, it's been applied across the board for all purposes until April 30th of 2018 when the CAL Supreme Court issued the Dynamics.

Decision. Yes, I know that the press. There was quite a bit of news stories about AB5, particularly over the last couple weeks. And we heard a lot about Uber and Lyft and it felt like towards the end that there was somewhat of a. The Uber and Lyft and the gig economy really was the focus of the issues before the legislature. But AB5 has so much more to do with so many other industries than just the gig economy. Like you said, 31 carve outs or so, give or take. So are we talking about what professionals? Attorneys, accountants, psychologists, estheticians, barbers. Okay, so we can understand why offshore fishermen. That's right.

Commercial. Commercial fishermen.

Yes. So I can see that it became quite the issue for this.

Year. Well, as you said, concurrently, I must say that both the California Labor Federation and the building and construction trades, which were the main sponsors bill, along with Assemblywoman Gonzalez, we're very clear from the outset we are not going to address the gig economy. We think that they should be employees. Now, I was one of those pundits, if you will, who thought ultimately, not in AB5, but in another bill, you would see a deal with the gig economy with some sort of third variant. Right. Not employee, not independent contractor, but someone with say, portable benefits. I think they offered a guaranteed minimum wage, et cetera. I was not surprised that they weren't in AB5, but I did think that ultimately they would get in into their own bill. But I think labor was very clear that they would not have it. And that in fact is what.

Happened. And speaking of an industry with its own bill, didn't we see that with the newspaper carriers at the late end of the day last Minute digit ditch.

Effort. Well, you know, I'll try not to bore the HR professionals and employees. But I have to say this was a most interesting1 because AB170 was a bill that Cal Chamber and others opposed and that actually failed passage bill that was related to discrimination claims. And so we felt pretty good about that. And then we heard it was being amended and thought, oh gosh, is she going to finally address our concerns, you know, on a 90 day rebuttable presumption. But in fact she didn't. It was stripped of its contents and a one year provision was in. Well, this was forced upon her. And Thursday morning in the Senate Labor Committee and Friday afternoon in the Assembly Labor Committee, Assemblywoman Gonzalez made clear that this was her language. She said, this was shoved down my throat and I will be voting no. So even though she presented it in the two policy committees in fewer than two days, she actually voted no on her own bill when it returned to the Assembly. So it was quite an interesting thing and kind of ironic to hear the News Publishers association lobbyists speak in the Assembly Labor Committee and thanking the author for carrying the bill when in fact she had just said I'm opposed to this and I'm voting.

No. Oh, the games of the legislature. Actually, that is quite fascinating. So I'm sure all of you have a little bit of trivia now right on the workings of AB5 and the news carrier's one year exemption. So we'll see. So AB5 is on the governor's desk. Yes. We've gotten indications that he is going to be signing.

It. Yes. On a Labor Day op ed in the Sacramento Bee, the governor committed to signing the measure, but the author has committed, as have organized labor, to continue to work with interested parties through the fall. And undoubtedly she already submitted a letter to the Daily Journal saying that there were a couple of errors in the language. So she will definitely have a cleanup.

Bill.

Okay. And I think she is willing to entertain some other.

Exemptions. And I think what's important for our listeners on the podcast, you know, the AB5 is a very large bill. There's a lot of exceptions, There's a lot of hidden nuggets to it. And I think it's really important for folks to not only listen and look out for write ups that Cal Chamber will be putting out on AB5, but consult with legal counsel as well if you have any questions as to whether or not you have a worker that is either an employee or independent contractor and what test to apply whether it's the DYNAMEX ABC test or Dynamics or the old Borrello multifactor test from years ago. There'll be a lot more for us to talk about. AB5 will continue to be a reoccurring guest here on the podcast, and it sounds like the issue is not going away anytime soon. Last but not least, AB51, another job killer bill for Cal Chamber, which is a ban on arbitration agreements. This too, snuck out of the legislature and with a big red bow, is on the governor's desk for.

Consideration. Yeah, well, this is the third effort by organized labor and the plaintiff's bar. The first was in AB465 in 2015. That was a Cal Chamber job killer. And after much deliberation on the last day, Governor Brown vetoed that measure, saying that it was questionable whether or not it violated the Federal Arbitration Act. And he cited to two cases that were then pending at the US Supreme Court. One of them ultimately was dismissed. But In December of 2015, the DirecTV vs Emberja case was decided, which in my reading was almost a elementary civics lesson, because if you read the majority opinion, it was in essence, hey, folks, we are the supreme law of the land, and when we say these things violate the faa, we really, really mean it, so stop doing.

It. So, Chris, for those of us that are listening, going, okay, I'm not quite sure I know what's going on here. AB51 is essentially seeking to ban mandatory arbitration agreements that are made as a cond. Of employment that require the arbitration of any dispute arising under the Labor Code or the Fair Employment and Housing Act. So essentially, when folks don't want to go to court, they can agree to resolve their dispute outside of court. So it's that alternative dispute resolution.

Process. Absolutely. And that's something we've had to remind legislators and frankly the proponents as well, that remember, this bill is only a matter of forum for the dispute resolution. One of the things that we have faced the last two years, and let me just add, last year, a nearly identical bill, the same author and sponsored by the same groups, went before Governor Brown and he had a lengthy veto message, but he vetoed it. His closing statement was the bill plainly violates federal law. And so this is a reintroduction. And it's not surprising because like quite a number of bills, particularly in the labor and employment area, that Governor Brown vetoed last year are back and many of them have reached his desk. And this is one of them with the hopes that they will get a different outcome with Governor Newsom. And quite frankly, that bill may be the case. He has not publicly said what he's going to do, but certainly every indication is that he very well might sign this and let the courts decide or not. But yes, I think you've outlined what the issue is. There has been a growth in the use of arbitration. However, the problem fundamentally is that the proponents believe, essentially they say, hey, look, we've adopted in California all these wonderful employee protections, and the only way to ensure that you can be protected is to litigate in civil court. And we've tried to explain to legislators repeatedly, arbitration is just a different forum. All of those valuable rights are not lost. I always say, for example, just because Rob is my employee now and signs an arbitration agreement doesn't mean that I can discriminate against him or I can pay less than the minimum wage. Right. All of his substantive rights rights are perfectly intact. And yet if you hear the author and sponsors present this bill, it's all about the only way to ensure those rights are protected is to enforce them in a court of.

Law. Keep the big picture in mind. Right? It's not just another forum that exists in an abstract world where one form is equal to another. The Federal Arbitration act ensures that that forum is something that can be used. So when you try to outlaw a forum, it's not just picking amongst any old. Governor Brown's point is true in the minds of many attorneys that it is explicitly in violation of the federal Arbit act to say you can't use this forum, which federal law says you.

Can'T. That's right. And Governor Brown vetoed this very same bill, or almost substantially somewhere last year. And there is nothing that has changed in the course of the last 12 months that would alter the position that the Federal Arbitration act is still the supreme law of the land when it comes to arbitration and should continue to maintain the ability of employers, employees and consumers to utilize the arbitration provisions and.

Agreements.

Right. And let me just say that the author and proponents have tried to distinguish this bill from the prior ones to argue, in essence, that we are not undoing any arbitration agreements that have been made or prohibiting them. Instead, we are saying that they in essence, have to be voluntarily entered into. And so this is a normal contract defense, which of course the FAA allows. However, the US Supreme Court addressed this when a Kentucky statute was before them in the Kindred Nursing Homes case. And they basically said, hey, if we made it this easy to get around arbitration, the FAA would be for naught. So a, we think it clearly violates federal law, as Governor Brown said. And the other thing is, Cal Supreme Court in the Armendariz case set down five provisions that every employment arbitration agreement has to have have such as a neutral arbitrator, that costs can't be borne by the plaintiff, et cetera, to ensure that California employment arbitration is very fair to.

Employees.

Yeah. Well, gentlemen, we're in a wait and see mode now, aren't we? Yes. So Robert, can you explain real quickly, what's the timeframe looking at now? Legislature is pretty much they're done for, at least at this point in time. The focus is now on Governor Newsom. What are some deadlines that we're looking.

At? There's a period now where the law has been passed. The governor hasn't signed it.

Yet.

Yes. But if the governor vetoes it, that'll make it easier for employers in terms of compliance. But we don't think that's likely. The question mark will be between the governor's signature, the law going to effect and the potential follow up litigation which will lead to someone putting forward, as we've discussed here, does the FAA mean that this law is unconstitutional or federally preempted? Because in that time window, employers will have have a difficult decision and should speak to their attorneys to come to a strategy to deal with that ambiguous.

Period. Yeah. No, you're absolutely right. Should AB51 get signed by the governor, then again, employers are going to be looking to their counsel to figure out what do I do. So is this only applying to agreements entered into prospectively from January forward? Are we going to go ahead and make changes now? Are we going to wait and see if this is challenged? There's a lot of wait and see. So not just for us to see what the governor does, but for employers and planning purposes too, between now and January 1st. So that's a really good point to raise. Okay, so Governor Newsom has how.

Many days until October 13th at midnight to.

Act? Okay. To act. So he has to either sign or veto. If he does nothing, what happens.

To become law without a signature, which has happened.

Yes. In the.

Past. Governor Brown only did it two or three times in the last eight.

Years. Yeah. So for those of you that read Cal Chambers publications and our Alert and our Daily Headlines and our blog, our HR watchdog blogs and our Capital Insider blog, we will be keeping everybody up to date on not only the bills that we talked about today, but a number of other key pieces of legislation that have made their way to the governor's desk. So with that, I'd like to thank both of our guests today, Chris and Robert, thanks for all your hard work. We really appreciate it. And we know that your jobs are not done yet, so keep up the good.

Work. Thanks.

Erica. All right, we will. Thanks for joining us at the Workplace. Please comment, share and subscribe to CalChamber's podcast@calchamber.com.