Choice-Of-Law Limitations: California or Bust

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08/23/2017

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Choice-Of-Law Limitations: California or Bust

 By: Rebecca Hause-Schultz

For any employment contract entered into, modified, or extended on or after January 1, 2017, employers can’t require employees who primarily reside and work in California to arbitrate or litigate disputes outside the state or under another state’s laws if the claim or controversy arose in California. Earlier this month, Governor Brown signed Senate Bill 1241, which prohibits an employer from requiring California employees to bring employment claims against an employer in any venue outside California. Thus, employers may not require employees to sign a forum section clause dictating litigation or arbitration that occur outside California.

The bill also provides that employment contracts may not deprive employees the substantive protections of California law. Thus, for all claims or controversies that arise in California and involve employees who primarily work and reside in California, employers may not impose a non-California choice of law provision. The bill would make any provision of a contract that violates these prohibitions voidable, upon request of the employee, and would require a dispute over a voided provision to be adjudicated in California under California law. Further, a court may award attorney’s fees to an employee enforcing his or her rights under this new law.
 
Under the current state of the law, courts may invalidate “unconscionable” contracts where one party was oppressed or surprised by the contract term due to unequal bargaining power, and where the provision would produce overly harsh or one-sided results. However, SB 1241 mandates that employers may not deprive employees of the right to bring claims in California under California law except where the employee is represented by counsel during the employment contract negotiations, regardless of whether or not the term is unconscionable.
 
Proponents claim the measure will prevent companies from avoiding California’s employee friendly labor laws. Others, however, claim that the bill limits employers and employees’ ability to negotiate and enter into contracts. Further, the bill will force out-of-state companies to have California-specific employment agreements.

COUNSEL TO MANAGEMENT:

Employers should be aware that choice-of-law and choice-of-venue provisions in employment contracts for California employees are now voidable if they violate SB 1241, meaning that an employee can choose to invalidate that portion of an employment agreement for contracts entered into, modified, or extended on or after January 1, 2017. If you have questions about employment contracts or how SB 1241 may impact your current employment contracts, contact the Saqui Law Group.

 

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