By Michael Arnold, Brent Douglas and Audrey Nguyen
Beginning next year, employers may no longer force their
California employees to resolve their employment-related disputes
outside of California or use non-California law when doing so.
With limited exceptions, the new law, codified at Labor Code
Section 925, will be applicable to all employment agreements
entered into, modified, or extended on or after January 1, 2017.
The new law is yet another attempt by California policymakers
to provide added protections to employees working in their
The Law Tries to Keep Disputes in California and Apply
Specifically, the new law states that 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 provides for either or both of the following:
Requires the employee to adjudicate outside California a claim
arising in California; or
Deprives the employee of the substantive protection of
California law with respect to a controversy arising in
Currently, companies may require employees to agree to a
non-California venue or to apply non-California law to resolve
disputes, subject to certain constraints. But starting
January 1, 2017 such contracts will be voidable at the
employee's election subject to a few important exceptions we
will address further below.
Despite its robust limitations on venue selection and choice of
law clauses, the legislation fails to define several important
concepts, including who "primarily resides and works in
California" or what "substantive protection of California
law" means, thus leaving open two avenues for future
Important Exceptions Apply
First, the law is not retroactive and older agreements may
retain their existing non-California venue and choice of law
provisions. However, the law does cover those agreements
extended on or after January 1, 2017. Thus, employers must
keep an eye on agreements whose terms automatically extend to avoid
a violation of the new law. In such cases, employers will
need to determine whether to terminate those agreements short of an
extension (which can create its own set of issues) or amend them to
comply with the law.
Second, the law excludes from its coverage contracts where the
employee is "individually represented by legal counsel in
negotiating the terms [of the] agreement." This
provision will likely prove handy for executive employment
agreements and settlement agreements. One outstanding
question is whether an agreement will be excluded where the
employee retained a lawyer, but the agreement was not subject to
Third, Section 925 expressly applies only to agreements that are
entered into "as a condition of employment." This
would seem to exclude contracts where the employee truly has a
choice over whether to execute, including where the employee may
have the option to opt-out of the agreement at some later
date. This is yet another area where the courts may lend an
Important Question Remains Over Scope of Prohibition
Based on the wording of the statute, it is unclear whether
requiring the employee to enter into an agreement containing
non-California venue and choice of law provisions is by itself a
violation of the statute. The law says employers are not
permitted to do this, but also provides the employee with the
option of voiding the contract. The answer to this question
is critically important because the new law makes imposing a
non-California venue or choice of law an independent cause of
action and successful litigant-employees can recover attorneys'
fees in addition to injunctive relief and any other available
remedies under California law. Query then whether an employer
may be able to include some savings language. Examples
include notifying the employee of his or her ability to void the
agreement and also stating that the employer is not otherwise
seeking to deprive the employee of the substantive protection of
California law with respect to a controversy arising in
* * *
California employers need not review or revise any existing
employment agreement solely because of the new law. However,
they should ensure that all employment agreements entered into or
even slightly revised after January 1, 2017 that they require an
employee to enter into as a condition of employment will be in
compliance. Employers should consider whether to change
agreements entered into as a condition of employment to include
California choice of law and forum provisions or to just leave them
silent on these issues.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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