Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Labor and Public Employment, to which was referred S.B. No. 469 entitled:

begs leave to report as follows:

The purpose of this bill is to protect the rights of employees by making it an unlawful discriminatory practice for any employer to include in an employment document as a condition of employment, any provision that interferes with the protected right of filing a charge in an investigation or that relinquishes any other employee right or protection.

On March 16, 2004, your Committee heard this measure in the form as it was received from the Senate. The Hawaii Civil Rights Commission and ILWU Local 142 testified in support of this measure. The Department of Labor and Industrial Relations (DLIR), The Chamber of Commerce of Hawaii (CCH), the Society of Human Resource Management (SHRM), Hawaii Reserves, Inc., the Polynesian Cultural Center, John Mullen & Co., Inc., Olsten Staffing Services, and a concerned individual testified in opposition to this measure.

Your Committee declares that the Hawaii Supreme Court (Court) has upheld the enforceability of mandatory arbitration agreements, including those in employment applications. In Larry Brown, et al. v. KFC National Management Company et al., 82 Haw. 226, 921 P.2d 146 (Haw. 1996), the Court agreed that an employer and prospective employee had the right under law to enter into a binding agreement to arbitrate future disputes, including a claim for race discrimination. The Court relied on cases from around the country that had upheld such agreements, as well as the Hawaii Arbitration Act.

This ruling demonstrated the Court's strong preference for arbitration of claims, including discrimination claims, when the Court noted "Hawaii has codified its endorsement of the enforceability of arbitration agreements in H.R.S. ch. 658 (1993)." 82 Haw. at 232, 921 P.2d at 152.

A recent opinion by the United States Supreme Court, however, appears to conflict with Brown. In Equal Employment Opportunity Commission v. Waffle House, Inc., 122 S.Ct. 754 (2002), the United States Supreme Court upheld the power of the Equal Employment Opportunity Commission (EEOC) to pursue claims on behalf of victims of discrimination despite the existence of a mandatory arbitration agreement.

This ruling would appear to depart from the Court's approval of arbitration [See, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), and Circuit City Stores v. Adams, 532 U.S. 105 (2001)], as well as the position held by the majority of federal circuit courts [See, Seus v. John Nuveen & Co, Inc., 146 F.3d 175 (3d Cir. 1998), cert. denied, 525 U.S. 1139 (1999); Patterson v. Tenent Healthcare, Inc., 113 F.3d 832 (8^th Cir. 1997); Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482 (10^th Cir. 1994); Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161 (5^th Cir. 1992); Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698 (11^th Cir. 1992); Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305 (6^th Cir. 1991); Laniok v. Advisory Comm. Of the Brainerd Mfg. Co., Pension Plan, 935 F.2d 1360 (2d Cir. 1991); Saari v. Smith Barney, Harris Upham & Co., Inc., 968 F.2d 877 (9^th Cir. 1992); Solomon v. Duke University, 850 F. Supp. 372 (M.D.N.C. 1993); Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361 (7^th Cir.), cert. denied, 120 S.Ct 44 (1999); and Williams v. Katten, Muchin & Zavis, 837 F.Supp. 1430 (N.D. Ill. 1993)].

In their dissent to Waffle House, Justice Thomas, the Chief Justice, and Justice Scalia noted that this ruling was contrary to the Court's decisions over the past twenty years which expanded the scope and reach of the Federal Arbitration Act, and that in the absence of any indication that Congress intended such a result, the EEOC should not be allowed to undermine a valid and enforceable agreement between an employer and employee.

Concomitantly, this bill seeks to demonstrate whether this Legislature agrees with the United States Supreme Court's position as to whether the Hawaii Civil Rights Commission should likewise be allowed to seek victim-specific judicial relief, such as backpay, reinstatement, and damages, in a discrimination enforcement action notwithstanding a valid arbitration agreement in an employment contract.

Based on the testimony submitted, your Committee is not at this time convinced that such a change from the existing public policy is warranted, especially in light of Waffle House and the vast amount of case law it departs from. Be that as it may, should the Court in its wisdom at some future date choose to reverse its ruling on Brown, your Committee asserts that such a change should be based on a clear indication of the Legislature's intent.

Accordingly, for purposes of facilitating discussion and receiving testimony, on March 30, 2004, your Committee heard a proposed House Draft 1, reflecting the deletion of current contents and the insertion of new language in a proposed amended form.

As amended, the bill would prohibit an employer or labor organization from discriminating against an employee who uses accrued and available sick leave in accordance with a valid collective bargaining agreement or valid employment policy. In addition, the amended bill would define "employee" to include an employee with a nonchronic condition of a short-term nature.

Your Committee notes that the proposed House Draft 1 is substantively the same as House Bill No. 2216, a measure that was previously reported [See, House Standing Committee Report No. 463].

The Hawaii State Teachers Association, ILWU Local 142, Hawaii State IBEW, and Hawaii State AFL-CIO testified in support of this bill. DLIR, Department of Human Resources Development, CCH, SHRM, Hawaii Credit Union League, Hawaiian Electric Company, Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, Hawaii Medical Service Association, and concerned individuals testified in opposition to this proposed draft. The Hawaii Civil Rights Commission and Verizon provided comments on this bill.

Your Committee finds that while sick leave is a benefit provided on a voluntary basis by employers, if an employer uses the voluntary provision of sick leave as an enticement to attract and retain employees, then the employer should likewise be required to provide that benefit without the employee fearing reprisal or retribution.

After carefully reviewing the law, your Committee asserts that there are currently no remedies available for certain employees who are discriminated against by their employer on the basis of an illness. [For a more thorough discussion, see, House Concurrent Resolution No. 78]

Despite testimony received from the business community and DLIR to the contrary, your Committee is not convinced that the proposed House Draft 1 would result in a substantial increase in costs for employers nor lead to rampant abuse of sick leave by employees. As stated in the proposed House Draft 1, the remedies provided under this bill would only apply for adverse employment actions resulting from discrimination for the use of sick leave "in accordance with an express provision of a valid collective bargaining agreement or a valid employment policy." [Emphasis added.] In other words, if such use is NOT legitimate, then the employee would NOT be able to seek relief from the Civil Rights Commission and the courts.

Your Committee, however, agrees that there is a need to clarify the conditions which would constitute the "legitimate" use of sick leave, and as such, it is your Committee's intent that an employee's absence which is verified by a physician or other health care provider shall be deemed "legitimate."

Lastly, your Committee concurs with the recommendation of the Hawaii Civil Rights Commission that the provisions of the proposed House Draft 1 will be more adequately addressed under the Employment Practices Chapter of the Hawaii Revised Statutes (HRS).

Accordingly, your Committee has amended this bill by deleting its substance and inserting the operative provisions of the proposed House Draft 1 into a new statutory section to be added to Part I of Chapter 378, HRS. Other technical, nonsubstantive amendments were made for clarity, style, and conformity.

As affirmed by the record of votes of the members of your Committee on Labor and Public Employment that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 469, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 469,

H.D. 1, and be placed on the calendar for Third Reading.