Borrowing from the famous tourism marketing tagline of its neighboring state, a new California law effectively tells employers, “what happens in California stays in California,” and gives employees the power to strike down choice of law and venue selection provisions that reach beyond the state. S.B. 1241, which was signed by Governor Jerry Brown on September 25, applies to all employment contracts entered into, modified, or extended on or after January 1, 2017.

Overview of the New Law

S.B. 1241 makes it unlawful for any employer to “require an employee who primarily resides and works in California” to agree to a provision as a condition of employment that would either (1) require the “employee to adjudicate outside of California a claim arising” within the state or (2) “[d]eprive the employee of the substantive protection of California law with respect to a controversy arising in California.”

The law makes any provision of a contract setting venue outside of California or choice of law other than California voidable by the employee, and states that “if a provision [of a contract] is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.”

Employers who find themselves on the wrong side of a challenge under S.B. 1241 face the possibility not only that a court will enter injunctive relief and other available remedies in the employee’s favor, but also may (and most likely will) be ordered to pay the employee’s reasonable attorney’s fees.

Notably, S.B. 1241 does not apply to any 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.”

Employer Take Aways

First, employers should note that S.B. 1241 applies only to employees who primarily live and work in California. Thus, to the extent that an employee works in California on a limited basis, employers should consider obtaining an acknowledgment from the employee stating that he or she works primarily outside of California. Any employees who primarily work in California, but live in a different state, should be asked to regularly acknowledge that their out-of-state address is their primary residence.

Second, for purposes S.B. 1241, “adjudication” includes both litigation and arbitration. In related news, Governor Brown also signed into law S.B. 1007, which grants a party to an arbitration the right to have the proceedings recorded by a certified shorthand reporter.

Finally, bear in mind the carve-out for contracts with employees who were represented by counsel. If an employee is represented in connection with the contract negotiation, include an acknowledgment to that effect in the agreement and consider having the lawyer for the employee execute the acknowledgment as well. With such an acknowledgment incorporated into the agreement, a clause designating a choice of law or venue outside of California should be non-voidable for purposes of S.B. 1241.