Many companies doing business in California have headquarters in other states and require their California employees to sign employment contracts stating (1) that disputes with their California employees will be litigated or arbitrated in other states; and (2) that the law of other states will be applied to resolve any disputes between the employer and the employee. Companies may prefer that the law of the state where they are headquartered govern disputes with all of their employees, and such provisions may allow them to get around some of California’s more pro-employee laws. Before January 1, 2017, such forum-selection and choice-of-law provisions were typically enforceable in California unless a California court found that another state’s law is contrary to a fundamental policy of the state of California.
Effective January 1, 2017, Senate Bill 1241 added Section 925 to the California Labor Code, which provides that an employer shall not require an employee “who primarily resides and works in California,” as a condition of employment, to agree to either: (1) resolve claims arising in California in other states; or (2) deprive the employee of the substantive protection of California law where the controversy arose in California. Any such provision in an employment contract entered into, modified, or extended on or after January 1, 2017 is voidable by the employee and the matter shall be resolved in California under California law. If an employee has to sue to void a forum-selection or choice-of-law clause in an employment contract, the employee can recover his or her reasonable attorneys’ fees.
One notable exception is that Labor Code section 925 does not apply where an employee was represented by his or her own attorney in negotiating the terms of the contract. Significantly, section 925 applies whether the employment contract contains an arbitration clause or not, so that California employees cannot be forced to arbitrate their claims in other states and under another state’s laws.
It is important to note that Section 925 does not affect employment agreements already in effect. However, employers should review their contracts going forward to determine whether the terms violate the new law. Section 925 applies even where an existing employment contract is modified or extended after January 2017, so that forum-selection and choice-of-law provisions in effect before that time will no longer be enforceable once the contract is modified or extended. If an employer has employees in multiple states it may want to draft a “California version” of its employment agreement which does not contain forum-selection of choice-of-law provisions, or include a sentence in its standard agreement exempting California employees from such clauses.
This article is intended to address topics of general interest, and should not be taken as legal advice.
© 2017 Noland, Hamerly, Etienne & Hoss