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California nixes forum selection, choice-of-law provisions

February 13, 2017

A new California law prohibiting employers from imposing a  foreign forum selection and choice of law clause on California employees became effective on January 1, 2017. Here’s what you need to know:

Labor Code section 925

Under California Labor Code section 925 (previously known as SB 1241), an employer may not impose, as a condition of employment, any provision requiring an unrepresented employee who primarily lives and works in California to agree to a provision requiring the employee to adjudicate disputes arising in California in a forum outside of California or under other than California law. The law applies to all employers who enter employment agreements inside California, regardless of size.

The new law governs in arbitration as well as traditionally litigated matters.

Exceptions to section 925’s ban largely relate to voluntary, negotiated agreements — where both sides were represented by counsel.

Under section 925, any provision of an agreement that violates the law is voidable by the employee. Moreover, any disputes about whether a provision is voidable must be litigated in California, under California law. The court has a range of remedies to choose from in case of a violation of section 925, including injunctive relief and attorneys’ fees. On top of that, of course, violations of section 925 can trigger unfair business practices claims, violations of public policy, and other consequences. Don’t forget Labor Code section 432.5, too — which prohibits an employer forcing an employee to sign a provision that the employer knows violates the law.

Section 925 applies to agreements entered into, modified, or extended on or after January 1, 2017. The meaning of “extended” is not entirely clear, but employees will certainly argue that it includes provisions entered into before the law passed which remain in place after the statute’s effective date.

What can you do to avoid liability?

Multi-state employers should begin reviewing handbooks, policies and other related documents for non-compliant provisions immediately. They should also take steps where appropriate to ensure that truly voluntary agreements are properly memorialized to include involvement of counsel for the employee.

Of course, a conversation with your favorite consultant or employment attorney (my number is up and to the right), would be a good idea as well.

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