California prohibits employee agreements providing for out-of-state venue or law

Sandra R. McCandless, Jim S. McNeill, Nick S. Pujji and Ian Barker

Dentons

Effective January 1, 2017, employers doing business in California can no longer require, in an employment contract or offer letter, that a California employee bring an employment dispute outside California or have a dispute decided under the law of another state or a foreign jurisdiction.

On September 25, 2016, Governor Jerry Brown signed Senate Bill No. 1241, which adds section 925 to the California Labor Code, prohibiting an employer from requiring that an employee who primarily resides and works in California adjudicate a claim outside the state or depriving the employee of the substantive protection of California law. Any such prohibited provision is voidable by the employee.

Where an employee voids such a provision under the new law, the matter will be adjudicated in California under California law. The legislation exempts contracts regarding venue, forum or choice of law where the employee is individually represented by legal counsel in negotiating the agreement.

SB 1241 covers agreements entered, modified or extended after January 1, 2017, whether they apply to court proceedings or arbitration. This means that an employer may not use an arbitration clause to require that a dispute be heard outside California or to avoid the application of California law.

Attorneys’ fees are available to employees who successfully enforce their rights under the new law.

Implications for current and future employment agreement and offer letters

Many national employers have provisions in their employment agreements requiring that the litigation or arbitration of disputes be venued in a forum outside California and/or that the law of a state other than California will apply. New California Labor Code section 925 prohibits these provisions and provides an incentive to challenge them in the form of attorneys' fees to plaintiffs' attorneys. Ensuring compliance with the new law requires that employers review the venue and choice-of-law provisions of the employment agreements used with California employees and provide for California venue and law in agreements to be entered, modified or extended after January 1, 2017, unless an employee is represented by legal counsel in negotiating such agreements.

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