Employers No Longer Have a Choice When It Comes to Choice of Law and Forum Selection Clauses

Current California Law

Many employment agreements used by employers who operate nationwide contain “forum selection” and “choice of law” provisions that require employees to litigate any disputes in the state where the employer’s corporate headquarters is located. Current law allows this practice in certain circumstances, since parties to a contract are generally free to agree to litigate their claims wherever they wish. Senate Bill 1241 changes all that.

Senate Bill 1241’s Impact

Last month, Governor Brown signed Senate Bill 1241, codified as Labor Code section 925. The law, which goes into effect January 1, 2017, will make it illegal for employers to require their employees “who primarily work and reside” in California to sign arbitration and employment agreements that require disputes to be litigated in, or under the law of, another state. The only exception to this rule is where the employee is represented by legal counsel when the agreement is negotiated. Otherwise, any employment agreement made in violation of the new law is not only voidable, but is illegal. An employee challenging the agreement may seek injunctive relief and other remedies, including reasonable attorney’s fees.

The impetus behind Section 925 was to prevent out-of-state employers’ attempts to circumvent California laws that embody important California public policies, such as the prohibition on covenants not to compete. Accordingly, the law will ensure that litigation involving California residents is held in California, and that California law will apply. However, the law only applies to employment agreements entered into, modified or extended after December 31, 2016, and will thus not impact existing employment contracts.

Recommendations for Employers

If your employees “primarily reside and work in California,” you should review your employment agreements to ensure that, going forward, your agreements comply with the new law.

If you would like us to draft or review your employment agreements, contact Kelli Kennaday at kkennaday@kennadayleavitt.com or Adam Khan at akhan@kennadayleavitt.com.