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NEW CALIFORNIA LAW PROHIBITS EMPLOYERS FROM INCLUDING NON-CALIFORNIA CHOICE OF LAW AND VENUE PROVISIONS IN EMPLOYMENT CONTRACTS

Brian E. Shear, Esq. - Attorney at Law, Becker Law Group

For all contracts entered into, modified, or extended on or after January 1, 2017. California law prohibits the use of contract provisions that apply another state’s law or require adjudication of disputes in another state as a condition of the employment of an individual who primarily resides and works in California. New California Labor Code Section 925 provides as follows:

  1. 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:
  1. Require the employee to adjudicate outside of California a claim arising in California.
  2. Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
  1. Any provision of contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.
  2. In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney’s fees.
  3. For purposes of this section, adjudication includes litigation and arbitration.
  4. 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 of forum in which a controversy arising from the employment contact may be adjudicated or the choice of law to be applied.
  5. This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.

In order to provide increased protection to employees, Labor Code Section 925 appears intended to eliminate the contractual right of parties to select the law that will govern their contractual disputes and to choose the venue of any legal proceeding involving the their employment contract. Section 925 does not make non-California choice of law and venue provisions void; instead, it renders them potentially unenforceable or voidable at the option of the employee. Section 925 (b) states that the provision “is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.” Therefore, the employer who includes these questionable provisions cannot know what law will apply or where the legal proceeding will occur.

 

Section 925 only applies to employment contracts that are required “as a condition of employment….” If an employee is given a choice and not required to sign a contract as a condition of employment, the statute would not appear to apply. For example, employment agreements relating exclusively to participation in certain employee benefits would not appear to trigger the statute. However, Section 925 applies to both court and arbitration proceedings.

 

It is important to note that there is an exception to Section 925. It does not apply when an employee is “represented by legal counsel in negotiating the terms of an agreement….” This exception may prove quite useful to employers at the executive level, but rarely applicable to the vast majority of agreements.

 

Employees may challenge the objectionable provisions by seeking “injunctive relief and any other remedies available”, and a court may also award attorneys’ fees to employees. However, the remedy of injunctive relief may be unavailable when a contract involves non-compete provisions. The California Supreme Court has held that California courts are prohibited from enjoining another state’s court from hearing a lawsuit to enforce a non-compete. Advance Bionics Corp. v. Medtronics, Inc., 29 Cal.4th 697, 707-708 (2002). An employee may still assert a declaratory relief cause of action seeking to declare the choice of law or venue provision void under Section 925.

Employers with California employees should review all of their employment-related agreements to determine whether they should be revised in light of Section 925 and employees should be wary of employment agreements that seek to apply the law of another state.

Brian E. Shear, Attorney - Becker Law Group - Long Beach, CA shear@beckerlawgroup.com

Brian E. Shear, Attorney at Law - Becker Law Group

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