No Way Around It: SB 1241 Further Restricts Non-Compete Agreements For California Workers

by Orrick - Trade Secrets Group

Companies often seek to protect their trade secrets by requiring employees to sign non-compete agreements. California law invalidates such provisions except in very limited circumstances. See Bus. & Prof. Code §§ 16600 et seq. With the recent passage of a new statute, the ability of employers to enforce such agreements against California employees is more restricted than ever.  

On September 25, California Governor Jerry Brown signed Senate Bill 1241, which adds Section 925 to the Labor Code and prohibits employers from requiring employees who primarily reside and work in California to sign forum selection or choice of law provisions as a condition of employment. Among other things, this law will limit a company’s ability to circumvent California law disfavoring non-competes by requiring employees to adjudicate employment disputes outside of California or according to the laws of another state.

Common law governing forum selection and choice of law generally favors the courts and law of the state where a case or controversy arises, but that preference can often be overridden by contract. SB 1241 now mandates in most cases that the common law rule apply to employment agreements with California employees. Previously, some California courts (especially federal courts) enforced forum selection clauses in employment agreements, even where doing so might result in non-compete provisions being enforced.

Key Provisions of SB 1241

Under SB 1241, an employee who “primarily resides and works in California” may void any provision of an employment contract that:

(1) Requires the employee to litigate or arbitrate outside of California a claim arising in California; or

(2) Deprives the employee of the substantive protection of California law with respect to a controversy arising in California.

While early drafts of the bill made these prohibitions absolute, amendments allowed for exemptions where employees are individually represented by counsel in negotiating contract terms.

The new law goes into effect on January 1, 2017 and applies only to agreements entered into, modified, or extended on or after that date.

Effect of SB 1241

While SB 1241 restricts the use of forum selection and choice-of-law provisions in employment agreements, it does not call for their wholesale elimination. The law does not penalize employers for including such provisions in their employee agreements, and they will continue to be enforceable in certain circumstances.

As a preliminary matter, the law applies only to claims and controversies arising in California. Where claims and controversies arise in other states, employees are not afforded the law’s unilateral right to void forum selection and choice-of-law provisions.

Even where controversies do arise in California, the employee’s right is elective. Though it is difficult to imagine that an employee would opt not to invalidate a forum selection or choice-of-law provision where the employee’s right to work for another employer is at stake, there may be other situations in which an employee would allow such a provision to be enforced.

Also notable is that the legislation only applies where employees are not represented by counsel when negotiating an employment agreement. Thus, for example, top executives and other high-value employees who retain counsel to help them negotiate an employment agreement will not benefit from the law. Conceivably, some companies might even encourage prospective employees to obtain representation and thereby avoid the statute – though this strategy might backfire if counsel for the prospective employee pushes back on contract provisions that the company wants.

Employers may also seek to avoid application of the statute in other ways. For example, the familiar race to the courthouse is likely to still be in play, since the courts of other states may apply their own law in determining whether a forum selection or choice of law provision in an employment agreement is enforceable. And the statutory provision limiting the enforcement of arbitration provisions is likely to face a challenge under the Federal Arbitration Act.

At minimum, companies would be wise to ensure that any forum selection or choice of law provisions in an employment agreement are accompanied by effective severability clauses in case they become the subject of litigation under the new law.

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.

© Orrick - Trade Secrets Group | Attorney Advertising

Written by:

Orrick - Trade Secrets Group

Orrick - Trade Secrets Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.