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AB-747 Business: unlawful employee contracts and requirements.(2023-2024)

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Date Published: 01/25/2024 09:00 PM
AB747:v94#DOCUMENT

Amended  IN  Assembly  January 25, 2024
Amended  IN  Assembly  May 18, 2023
Amended  IN  Assembly  April 26, 2023
Amended  IN  Assembly  April 03, 2023
Amended  IN  Assembly  March 20, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 747

Introduced by Assembly Member McCarty
(Coauthors: Assembly Members Jackson, Kalra, and Ting)

February 13, 2023

An act to amend Section 16601 of, and to add Sections 6090.5.5, 16608, 16609, 6090.5.5 and 16610 to, the Business and Professions Code, and to amend Section 925 of, and to add Section 926 to, of the Labor Code, relating to business.


LEGISLATIVE COUNSEL'S DIGEST


AB 747, as amended, McCarty. Business: unlawful employee contracts and requirements.
(1) Existing law provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except as provided. Existing law authorizes any person who sells the goodwill of a business, any owner of a business entity selling or otherwise disposing of all of their ownership interest in the business entity, or any owner of a business entity that sells specified assets or ownership interests to agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, if the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein. Existing law defines “ownership interest” as a partnership interest, membership interest, or a capital stockholder, as described.
This bill would modify the definition of “ownership interest” to require the partnership interest, membership interest, or capital stock to be more than a 10% interest of the total partnership interest, more than a 10% interest of the total membership interest, or more than 10% of the total shares of ownership of the entity, respectively.

This bill would prohibit an employer from entering into a contract or contract term that requires a debtor to pay for a debt if the debtor’s employment or work relationship with the employer is terminated, except as specified.

This bill would prohibit an employer from imposing any penalty, fee, or cost on an employee or independent contractor for terminating the employment relationship, as specified.

This bill would prohibit an employer, as defined, from entering into, presenting an employee, as defined, or prospective employee as a term of employment, or attempting to enforce any contract in restraint of trade, as defined, that is void, as described. The bill would provide that an employer, as defined, that enters into, attempts to enter into, or seeks to enforce a contract in violation of these provisions violates that provision is liable for actual damages and an additional penalty of up to $5,000 per employee, as defined, or prospective employee in a civil action brought by the employee or prospective employee. The bill would authorize an employee or prospective employee to bring an action for injunctive relief and for the recovery of actual damages and penalties and would provide that a prevailing employee or prospective employee is entitled to recover reasonable costs and attorney’s fees. The bill would require the Attorney General to receive and investigate allegations of a violation of this provision and would authorize the Attorney General to bring an action enforcing this provision.

(2)Existing

Existing law provides for a system of labor standards enforcement administered by the Labor Commissioner.
This bill would require the Labor Commissioner to enforce the above-described prohibition against entering into a contract or contract term that requires a debtor to pay for a debt if the debtor’s employment or work relationship with the employer is terminated, according to specified existing law, and would require the Attorney General and the Labor Commissioner to coordinate responsibility with respect to enforcement of those provisions, as specified, and would make a contract entered into in violation of that prohibition void. to, in coordination with the Attorney General, receive and investigate complaints related to the above-described provisions of this bill.

(3)

(2) Existing law, the State Bar Act, provides for the licensure and regulation of attorneys by the State Bar of California, a public corporation. Existing law provides that it is cause for suspension, disbarment, or other discipline for any licensee, whether acting on their own behalf or on behalf of someone else, whether or not in the context of litigation, to solicit, agree, or seek agreement that, among other things, misconduct or the terms of a settlement of a claim for misconduct shall not be reported to the State Bar.
This bill would provide that it may be is cause for suspension, disbarment, or other discipline for any licensee to enter into with an employee, prospective employee, or former employee, present an employee, prospective employee, or former employee as a term of employment, or attempt to enforce any employee contract or other agreement on the licensee’s behalf, or on behalf of their client, that violates the above-described prohibition against entering into a contract or contract term that requires a debtor to pay for a debt if the debtor’s employment or work relationship with the employer is terminated. in restraint of trade, as provided.

(4)

(3) Existing law prohibits an employer from requiring an employee who primarily resides and works in the state to agree, as a condition of employment, to a provision that would require the employee to adjudicate outside of the state a claim arising in the state or would deprive the employee of the substantive protection of state law with respect to a controversy arising in the state. Existing law provides that this prohibition does not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.
This bill would provide that, for a contract entered into, modified, or extended on or after January 1, 2024, 2025, the above-described prohibition does not apply to a contract with an employee who is individually represented by legal counsel, excluding when the counsel is paid for by, or was selected based upon the suggestion of, the employee’s employer, in negotiating the terms of an agreement and, at the option of the employee, designates either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 6090.5.5 is added to the Business and Professions Code, to read:

6090.5.5.
 (a) It may be is cause for suspension, disbarment, or other discipline for any licensee to enter into with an employee, prospective employee, or former employee, present an employee, prospective employee, or former employee as a term of employment, or attempt to enforce any employee contract or other agreement on the licensee’s behalf, or on behalf of their client, that violates Section 16608. Chapter 1 (commencing with Section 16600) of Part 2 of Division 7.
(b) For purposes of this section, “employee” includes, but is not limited to, a full-time or part-time employee and independent contractor.

SEC. 2.

 Section 16601 of the Business and Professions Code is amended to read:

16601.
 (a) Any person who sells the goodwill of a business, any owner of a business entity selling or otherwise disposing of all of their ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, if the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.
(b) For the purposes of this section, the following definitions apply:
(1) “Business entity” means any partnership (including a limited partnership or a limited liability partnership), limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or corporation.
(2) “Owner of a business entity” means any partner, in the case of a business entity that is a partnership (including a limited partnership or a limited liability partnership), or any member, in the case of a business entity that is a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or any owner of capital stock, in the case of a business entity that is a corporation.
(3) “Ownership interest” means any of the following:
(A) A partnership interest, in the case of a business entity that is a partnership, including a limited partnership or a limited liability partnership, that is more than a 10-percent interest of the total partnership interest of the entity.
(B) A membership interest, in the case of a business entity that is a limited liability company, including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series, that is more than a 10-percent interest of the total membership interest of the entity.
(C) A capital stock, in the case of a business entity that is a corporation, that is more than 10-percent of the total shares of ownership of the corporation.
(4) “Subsidiary” means any business entity over which the selling business entity has voting control or from which the selling business entity has a right to receive a majority share of distributions upon dissolution or other liquidation of the business entity (or has both voting control and a right to receive these distributions.)

SEC. 3.Section 16608 is added to the Business and Professions Code, immediately following Section 16607, to read:
16608.

(a)For purposes of this section, the following definitions apply:

(1)“Contract” includes a promise, undertaking, contract, or agreement, whether written or oral, express or implied.

(2)“Consumer financial product or service” has the same meaning as defined in subdivision (e) of Section 90005 of the Financial Code.

(3)“Debt” means money, property, or their equivalent that is due or owing or alleged to be due or owing from a natural person to another person, including, but not limited to, for employment-related costs, education-related costs, or a consumer financial product or service.

(4)“Debtor” means a natural person who is or may become liable to pay an employer, a prospective employer, a third-party entity, or other business entity for all or part of an employment-related cost, education-related cost, or other debt.

(5)“Education-related cost” means a cost associated with enrollment or attendance at an educational program and related expenses, including, but not limited to, tuition, fees, books, supplies, student loans, examinations, and equipment required for enrollment or attendance in an educational, training, or residency program.

(6)“Employer” means any person or entity that employs employees or independent contractors or any parent company, subsidiary, division, affiliate, contractor, or third-party agent of an employer.

(7)“Employment-related cost” means a necessary expenditure or loss incurred by a person in direct consequence of the discharge of their duties at work or of their obedience to a direction of their employer, including, but not limited to, equipment or a training, residency, orientation, or competency validation required either by an employer or to practice in a specific employee classification.

(8)“Person” means a natural person or an entity, including, but not limited to, a corporation, partnership, association, trust, limited liability company, cooperative, or other organization.

(b)Beginning January 1, 2024, except as provided in subdivision (c), an employer shall not enter into a contract or contract term that requires a debtor to pay for a debt if the debtor’s employment or work relationship with the employer is terminated.

(c)(1)An employer may require an employee to pay for training-related costs if they are incurred pursuant to a union-affiliated apprenticeship program.

(2)An employer may require an employee to pay for the cost of maintaining professional licensure required by the state.

(d)(1)This section applies to a contract or contractual term regardless of whether the debt is certain, contingent, or incurred voluntarily.

(2)This section applies to a contract or contractual term in which a person promises to pay or forgive a debt, defers liability of a debt, or holds a debt in forbearance.

(3)This section does not prevent a person or governmental entity from paying or forgiving a debt or from providing other benefits to a debtor or other natural person after the debtor or natural person completes a specified time period of employment or work relationship with an employer or other business entity.

(4)Nothing in this section shall be construed to limit or prohibit any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency, other than an individual agreement between an agency and its employee.

(5)This section does not limit or alter the obligation of employers under Section 2802 of the Labor Code.

SEC. 4.Section 16609 is added to the Business and Professions Code, immediately following Section 16608, to read:
16609.

An employer shall not impose any penalty, fee, or cost on an employee or independent contractor for terminating the employment relationship, including, but not limited to, a replacement hire fee, a retraining fee, reimbursement for immigration or visa-related costs, bondage fees, liquidated damages, lost goodwill, or lost profit.

SEC. 5.Section 16610 is added to the Business and Professions Code, immediately following Section 16609, to read:
16610.

(a)

SEC. 3.

 Section 16610 is added to the Business and Professions Code, immediately following Section 16607, to read:

16610.
 (a) An employer shall not enter into, present an employee or prospective employee as a term of employment, or attempt to enforce any contract in restraint of trade that is void under this chapter.
(b) (1) An employer that enters into, attempts to enter into, or seeks to enforce a contract in violation of this chapter violates this section is liable for actual damages and an additional penalty of up to five thousand dollars ($5,000) per employee or prospective employee in a civil action brought by the employee or prospective employee.
(2) An employee or prospective employee may also bring an action for injunctive relief. relief and for the recovery of actual damages and additional penalties pursuant to this section. In addition to these remedies, a prevailing employee or prospective employee in any action based on a violation of this section is entitled to recover reasonable costs and attorney’s fees.
(3) (A) The Attorney General shall receive and investigate complaints from persons alleging a violation of this section. section in coordination with the Labor Commissioner. If, after examining a complaint and the evidence, the Attorney General believes a violation has occurred, the Attorney General may bring an action to enforce this section pursuant to Chapter 5 (commencing with Section 17200).
(B) The Labor Commissioner shall receive and investigate complaints alleging a violation of this section pursuant to subdivision (b) of Section 926 of the Labor Code. section.

(b)The Attorney General and the Labor Commissioner shall coordinate responsibility with respect to enforcement of this section, according to the following:

(1)The Attorney General and Labor Commissioner may enter into an agreement with respect to civil actions by each agency.

(2)Any regulation or order made under the authority of this subdivision or any agreement under this subdivision shall not do any of the following:

(A)Limit the powers or authorities of the Attorney General or Labor Commissioner, including, but not limited to, the Attorney General’s ability to prosecute violations of civil or criminal law and the Labor Commissioner’s ability to prosecute violations of the Labor Code.

(B)Limit the rights of any person, or the obligations of any covered person, under this chapter, the Unfair Competition Law, the False Advertising Law, or a consumer financial law.

(C)Limit the rights of any employee under the Labor Code.

(3)The Attorney General shall notify the Labor Commissioner of any complaint regarding a contract or contract term that may constitute a violation of this section.

(c) For purposes of this section, the following definitions apply:

(1)“Consumer financial law” means a federal or state law that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction, or any account, product, or service related thereto, with respect to a consumer.

(1)  “Contract in restraint of trade” means any provision of any contract or other agreement that restrains anyone from engaging in a lawful profession, trade, or business of any kind, including a contract described in this chapter.
(2) “Employee” includes, but is not limited to, a full-time or part-time employee and independent contractor.
(3) “Employer” means any person or entity that employs employees.

SEC. 6.SEC. 4.

 Section 925 of the Labor Code is amended to read:

925.
 (a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
(1) Require the employee to adjudicate outside of California a claim arising in California.
(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.
(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing their rights under this section reasonable attorney’s fees.
(d) For purposes of this section, “adjudication” includes litigation and arbitration.
(e) (1) This section shall not apply to a contract with an employee who is individually represented by legal counsel in negotiating the terms of an agreement and, at the option of the employee, designates either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied. For purposes of this subdivision, an employee is not considered individually represented by legal counsel if the counsel is paid for by, or was selected based upon the suggestion of, the employee’s employer.
(2) The amendments made by the act adding this paragraph shall apply to a contract entered into, modified, or extended on or after January 1, 2024. 2025.
(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.

SEC. 7.Section 926 is added to the Labor Code, immediately following Section 925, to read:
926.

(a)A contract or contract term that violates subdivision (a) of Section 16608 of the Business and Professions Code is void as contrary to public policy.

(b)The Labor Commissioner shall enforce this section and subdivision (a) of Section 16610 of the Business and Professions Code, including receiving and investigating complaints of an alleged violation and ordering appropriate temporary relief to mitigate the violation or to maintain the status quo pending the completion of a full investigation or hearing through the procedures set forth in Section 98, 98.3, or 1197.1, including by issuance of a citation against an employer who violates this article and by filing a civil action. If a citation is issued, the procedures for issuing, contesting, and enforcing judgments for citations and civil penalties issued by the Labor Commissioner shall be the same as those set out in Section 1197.1, as appropriate. If the Labor Commissioner issues a citation or files a civil action under this subdivision, the Labor Commissioner may, in addition to any other penalties or remedies available, seek penalties pursuant to paragraph (1) of subdivision (b) of Section 16610 of the Business and Professions Code.

(c)The Labor Commissioner and the Attorney General shall coordinate responsibility with respect to enforcement of this section, according to the following:

(1)The Labor Commissioner and the Attorney General may enter into an agreement with respect to civil actions by each agency.

(2)Any regulation or order made under the authority of this section or any agreement under this section shall not do any of the following:

(A)Limit the powers or authorities of the Attorney General or Labor Commissioner, including, but not limited to, the Attorney General’s ability to prosecute violations of civil or criminal law and the Labor Commissioner’s ability to prosecute violations of the Labor Code.

(B)Limit the rights of any person, or the obligations of any covered person, under the Unfair Competition Law, the False Advertising Law, or a federal or state law that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction, or any account, product, or service related thereto, with respect to a consumer.

(C)Limit the rights of any employee under the Labor Code.

(3)The Labor Commissioner shall notify the Attorney General of any complaint regarding a contract or contract term that may constitute a violation of this section.

(d)A person, including a local government or an employee representative, seeking to establish liability against an employer may bring a civil action on behalf of the person, other persons similarly situated, or both, in any court of competent jurisdiction. The court may award reasonable costs, including reasonable attorney’s fees, as part of the costs, to any plaintiff who prevails in a civil action brought under this section.

(e)This section does not limit the remedies available to a debtor or other natural person specified in Section 16608 of the Business and Professions Code.