California Legislature Clamps Down on Potentially Abusive Practice of Using Choice of Law and Forum Selection Provisions in California Employment Agreements

Until recently, California employers could incorporate forum-selection and choice-of-law provisions into employment agreements.  Requiring California employees to litigate employment claims in a different state would present a tremendous impediment to the enforcement of employment claims for most employees–Can most employees to travel to, let’s say, NY or NJ to litigate their claims for discrimination or unpaid wages? To combat potential abuse, Senate Bill 1241 added Section 925 to California’s Labor Code effective January 1, 2017. Subject to various and appropriate exceptions, Section 925 limits an employers’ ability to require employees who are living and working in California to litigate or arbitrate such disputes outside of California or under the laws of another state.

This new law was enacted intending to prevent employers from contracting around California law, which prohibits, for example, non-compete clauses in employment agreements, by use of forum-selection provisions.  Additionally, Senate Bill 1241 limits employers’ ability to include certain foreign choice-of-law provisions in their employment agreements that provide for more “employer friendly” law. 

Exceptions: The law contains appropriate exceptions in which employers will be able to avoid the application of the statute. First, the law applies only to claims and controversies arising in California.  Where claims and controversies arise in other states, employees are not afforded the law’s unilateral right to void forum-selection and choice-of-law provisions.  Secondly, the statute does not apply when an employee is represented by legal counsel in negotiating the terms of the agreement containing the otherwise prohibited provisions.  Thus, top executives who hire an attorney to help them negotiate an employment agreement will not benefit from the law.  Finally, if an employer incorporates an opt-out provision and the employee has a meaningful choice whether or not to sign as a condition of employment, the statute does not appear to invalidate the otherwise voidable forum and choice-of-law provisions.