Beginning January 1, 2017, employers may not require a California employee to agree to litigate claims in a state other than California or to apply the law of another state to disputes that arose in California. These new restrictions pose particular problems for companies headquartered outside of California who employ workers in California.

New CA Labor Code Section 925

Recently signed into law by Governor Jerry Brown, Senate Bill 1241 adds section 925 to the California Labor Code. It provides that an employer “shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

  • Require the employee to adjudicate outside of California a claim arising in California.
  • Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.”

In other words, an employer may not force an employee who primarily works and lives in California to enter into an employment agreement, as a condition of employment, that provides that any claims must be resolved, either in court or by arbitration, in another state (a so-called forum-selection clause) or that another state’s law, which offers less protection to the employee than California law, will apply (a choice-of-law provision).

Why It Matters

California law is typically more pro-employee than other states’ laws. For instance, California law prohibits employers from requiring employees to waive their right to a jury trial before a dispute arises and places substantial restrictions on arbitration agreements. It also requires the payment of business expenses, where many other states do not.

Multi-state companies frequently seek to create some uniformity and predictability in where employment disputes will be litigated so they insert a venue clause into their employment agreements. Such clauses often provide that disputes must be heard in the state where the business is based or where its legal team is located, regardless of where the employee lives or works. Similarly, companies may write into contracts that the law to be applied is that of the state where they are headquartered or incorporated. This offers the business uniformity across all its operations and helps to avoid onerous employment laws in certain states.

The new Labor Code section 925 makes non-California venue and choice-of-law provisions virtually unenforceable per se for California employees, when made a condition of employment. If an employee has to go to court to enforce his or her rights to have a case in California and to use California law in the case, the court may award reasonable attorney’s fees to the employee.

Exception When Employee Represented By An Attorney

The new law contains an exception. It does not apply where the employee has been individually represented by legal counsel when negotiating the terms of the employment agreement. This exception will tend to help with executive employment agreements, but lower level employees are less likely to engage an attorney.

Finally, these rules apply to employers who might make their own state’s law a “condition of employment.” Therefore, they appear not to affect separation agreements with California employees.

Steps To Take

  • The new law applies to employment contracts entered into, modified, or extended on or after January 1, 2017. It does not apply retroactively to employment agreements already in place. Consequently, if an employer is in the process of getting employment contracts in place, it should make sure to do so for California employees before the end of the year.
  • Employers, including multi-state businesses, should review their standard employment agreements and boilerplate language regarding venue and choice of law, revising them for future use with California-based employees.
  • For employees who work occasionally in California, the employer should obtain an acknowledgement of that fact or state that fact in the recitals of an employment agreement.
  • For employees who are represented by counsel, include an acknowledgment to that effect in their employment agreements; to be absolutely clear, have the lawyer for the employee execute the acknowledgment as well.