California Labor Code section 925 will apply to employment contracts entered into, modified, or extended on or after January 1, 2017. This new law prohibits employers from requiring an employee who primarily resides and works in California as a condition of employment, to (1) adjudicate outside of California a claim arising in California or (2) deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
The employee can decide to void any provision of the contract that violates Section 925. The claim would then be adjudicated in California under California law. In addition, a court may award the employee attorney’s fees for enforcing his or her rights with respect to a violation of this statute.
But Section 925 contains one important exception. It does not apply to a contract when the employee is individually represented by counsel in negotiating the terms of the agreement.
Key takeaways for employers
For all contracts entered into in 2017 and beyond, an employer may not use any provision − including an arbitration clause − to require that a dispute be heard outside of California or to avoid the application of California law.
This may apply to agreements for out-of-state employees who later transfer to California or even remote employees (who move to California without telling you) because this Labor Code provision contains the magic words "employee who primarily resides and works in California."
Next steps for employers
It’s no secret that California presents employers with unique legal challenges.
California specific minimum wage, anti-discrimination, and parental leave laws have all been passed just this past year…And there were even hints in 2015 that choice-of-law and venue provisions would not always be enforced in California. See Ascension Ins. Holdings, LLC v. Underwood, C.A. No. 9897-VCG, 2015 WL 356002 (Del. Ch. Jan. 28, 2015) (holding that California law applied despite a Delaware choice-of-law and venue provision contained in a non-compete agreement).
Bottom line: venue selection and choice of law provisions in employment agreements will be available in 2017 and beyond if, and only if, (1) the employer is negotiating with an employee who has counsel or (2) the agreement is not a condition of employment.