New California Bill Targets Choice of Law and Forum Provisions in Employment Contracts

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Blank Rome LLP

Action Item: California Bill 1241 may give employees the power to void choice of law and forum provisions that subject employees to the laws of states other than California. The bill, which was passed on September 25, 2016, applies to all employment contracts entered into, modified, or extended on or after January 1, 2017. The bill will be enacted as Labor Code section 925.

Employer Prohibitions

Employers cannot require protected employees, as a condition of employment, to agree to a provision that would do either of the following:

  1. Require the employee to adjudicate (litigate or arbitrate) a claim that arose in California outside of California; or
  2. Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

Exemption

“This section shall not apply to a 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...” Cal. Labor Code § 925(e).

Employer Takeaways

Employers should be aware of employment contracts containing automatic renewal provisions. Such a provision likely would qualify as an “extension” within the definition of the bill and could  subject the employment contract to the prohibitions of the bill. 

If an employee is represented by counsel in negotiating an employment contract, the employer should consider obtaining signed acknowledgements from the employee and possibly the employee’s attorney stating that the employee was represented by counsel during the negotiation of the contract. Employers may also want to weigh the benefit of requiring employees to hire counsel, even if they provide some type of stipend for such a purpose, to ensure enforceability of a provision that may otherwise be voidable under this bill.

Finally, because the bill only applies to employees who “primarily” reside and work in California, employers should consider having employees who work in California on a limited basis sign an acknowledgment stating that the employee works primarily outside of California.

An employee who is enforcing his or her rights under this section may be entitled to injunctive relief and any other remedies available, and also can recover reasonable attorney’s fees.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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