On September 25, 2016, Governor Jerry Brown of California signed Senate Bill 1241 ("SB 1241") into law. SB 1241, which becomes effective in January 1, 2017, has devastating effects for employers in California, as the new legislation now prohibits employers from requiring an employee who "primarily resides and works in California" to agree, as a condition of employment, to a forum selection clause that designates a non-California forum or a choice of law provision that would deprive the employee of the substantive protection of California law.
Employers have long made use of forum-selection clauses and choice of law provisions in employment agreements to adjudicate disputes with their employees outside of California and/or under the substantive law of a state other than California. Employers may have good reasons for wanting to handle an employment dispute outside of California. For example, an employer's principal place of business may be located in another state, and the employer therefore finds that it is more convenient to deal with any dispute in their home state. Or, in the case of a choice-of-law provision, an employer may simply want some predictability in terms of which state's substantive law would apply to its employees, especially if the employer has employees in multiple jurisdictions.
Enforcement of forum selection clauses that designate a non-California forum was always a difficult battle in California, even prior to SB 1241, as employers needed to prove that such enforcement would not diminish substantive rights accorded under California law. However, SB 1241 now makes the enforcement of these forum-selection clauses extremely unlikely, if not impossible. SB 1241 also generally forbids choice of law provisions that indicate the substantive law of a state other than California if such provisions would "deprive the employee of the substantive protection of California law with respect to a controversy arising in California. Moreover, any contract provision that violates SB 1241 is voidable by the employee, and a court may award the employee enforcing his or her rights under SB 1241 reasonable attorney's fees in addition to injunction relief and any other available remedies.
There is one exception to SB 1241's prohibitions. SB 1241 does not apply to contracts with employees who are "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."
Employers need not worry about revising their current agreements with their California employees for now, as SB 1241 does not apply to employment agreements already in effect. The language of SB 1241 states that the legislation "shall apply to a contract entered into, modified, or extended on or after January 1, 2017."