When it comes to employment laws, California is generally considered an employee‑friendly state. On September 25, California Governor Jerry Brown made it just a little more friendly by signing bill S.B. 1241. For employees that primarily reside and work in California, S.B. 1241 prohibits employers from requiring an employee, as a condition of employment, to agree to a provision that would either: (1) require the employee to litigate or arbitrate claims arising in California in a forum outside of California; or (2) deprive the employee of the protection of California law with respect to claims arising in California.
Ultimately, this law aims to restrict a significant contractual freedom between employers and employees: the right to the “choice of law” in the event a dispute arises. Typically, contracting parties – including employers and employees – may agree to have their disputes heard in a specific location, or even have another State’s laws applied to their dispute. For example, a shipping company located in California doing business with a Nevada corporation may include in their contract a provision requiring any dispute be heard pursuant to the laws of the State of Nevada. With the exception of a very specific carve-out, for employees that are represented by legal counsel in negotiating the employment agreement, S.B. 1241 effectively prohibits parties from agreeing to this type of choice of law provision when the agreement would take the dispute out of California.
Another thorn in an employers’ side, care must be taken to review any employment or arbitration agreement to make sure it does not require the dispute be heard outside of California, or attempt to preclude the use of California law. Under S.B. 1241, any such provision is voidable by the employee, the effect of which is relatively nominal: the dispute must then be heard in California subject to California’s laws. However, there’s one more zinger employers must watch out for: statutory attorneys’ fees. Courts “may” award reasonable attorneys’ fees to an employee enforcing their rights under S.B. 1241.
With the constantly changing standard for arbitration agreements, most employers are already constantly analyzing and altering their employment and arbitration agreements to try and keep up. Fortunately, only contracts “entered into, modified, or extended on or after January 1, 2017” are affected by S.B. 1241. Employers should use the time until then to take yet another look at their arbitration agreements, and address any possible violation before it’s too late.