California’s New Law Restricts Choice of Law and Forum Selection Provisions in Employment Agreements
November 8 2016
On September 25, 2016, Governor Brown approved a very short but powerful piece of legislation for California employees who work for employers who are based outside of California and wish to have another state’s laws govern the employment relationship. Senate Bill 1241 adds Section 925 to the California Labor Code and states expressly that after January 1, 2017, an employer is limited in the use of forum selection and choice of law provisions in employment contracts with California employees.
Specifically, Section 925 states that:
“(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 his or her rights under this section reasonable attorney’s fees.
(d) For purposes of this section, adjudication includes litigation and arbitration.”
The one exception to the new rule is when an employee is represented by counsel when the employment contract is being negotiated. Specifically, Section 925(e) states that:
“(e) This section shall 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.”
In addition to the statutory right an employee has to challenge any choice of law or forum selection clause that violates section 925, if an employee suffers some adverse action (e.g. failure to hire or termination) because of either: 1) his/her refusal to sign an employment agreement that he/she believes violates section 925; or 2) his/her legal action to challenge the employment agreement under section 925, it is likely that the employee will also be able to bring a common law claim for violation of public policy based on the public policy contained in section 925.
Take Away: Employers should review and update the various forms of employment agreements they require their California employees to sign as a condition of employment (e.g. employment agreements, arbitration agreements, confidential & proprietary information agreements) to ensure they comply with the new law after January 1, 2017.