California: Choice of Law and Venue Prohibition in Employment-Related Contracts
All Employers with California Employees
January 1, 2017
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A new California Labor Code provision limits employment contract provisions that dictate when another state’s law or location will be used to adjudicate employment disputes for employees who primarily live and work in California. This law applies to contracts entered into, modified or extended on or after January 1, 2017, and to contracts that employees are required to assign as a condition of employment.
SB 1241 created Labor Code Section 925, which will significantly limit California employers from using the “choice of law and venue” clause that is common in contracts. Such clauses allow selection of what state’s laws apply and what location a claim could be adjudicated in. Section 925 is intended to protect individuals who live and work in California from being deprived of the protections of California law when adjudicating a claim arising in California.
An important distinction to note is that Section 925 does not necessarily make choice of law and venue provisions illegal, but rather a voidable provision. The Section states that use of such a provision “is voidable by the employee.” Thus, while an employer could still utilize a choice of law and venue provision, it is ultimately the employee’s decision to keep or invalidate it.
Section 925 applies only to contracts that are required as a condition of employment. If an employee is given the ability to opt-out of the agreement, Section 925 may not apply. Section 925 also applies to arbitration agreements that employees are required to sign. However, if legal counsel for the employee is involved in negotiating the contract, the Section 925 requirements do not apply, offering a potentially useful exception for employers doing high-level executive hiring, where individually negotiated agreements are more likely to occur.
- Audit existing, to-be modified or extended, or currently developing employment contracts for choice of law and venue provisions that could trigger Section 925.
- Review options for modifying employment contracts containing such provisions with legal counsel.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.
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