California Continues to Limit Employment Agreements—Forum Selection and Choice of Law Clauses are Now Out

On September 25, 2016, California Governor Jerry Brown signed SB 1241 into law. SB1241 adds the new Section 925 to the California Labor Code and severely limits California employers’ ability to select choice of law and forum in employment contracts. The law goes into effect on January 1, 2017, and will apply to any contract entered into, modified, or extended on or after that date.

Specifically, the bill prohibits employers from requiring an employee, who primarily resides and works in California, to agree to a provision, “as a condition of employment,” that would (1) require the employee to adjudicate (either through arbitration or litigation) a claim arising in California in an out-of-state forum, or (2) deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

The law further makes any provision of a contract that violates these prohibitions voidable upon request of the employee. If so requested, the dispute over a voided provision would then be adjudicated in California under California law. SB1241 further specifies that in addition to injunctive relief and any other remedies available, a court may also award reasonable attorney’s fees to an employee enforcing his or her rights under the law.

Significantly, SB1241 excludes employment contracts where the employee is “individually represented by legal counsel in negotiating the terms [of the] agreement.”

SB1241 requires employers to reconsider existing employment agreements and arbitration clauses containing forum selection and choice-of-law clauses. Such clauses for out-state companies with employees in California may no longer retain the “home court” state protections. California employers should consult with counsel to ensure compliance with the new requirements under California Labor Code section 925.

SB 1241 is available here.