SB 1241: Choice-of-Law, Choice-of-Venue Provisions in Employment Agreements Now Voidable by Employees

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Thanks to a new Labor Code provision signed into law by Governor Brown last fall, California employees may no longer need to worry about being forced to litigate their employment cases in far-flung jurisdictions or under laws that provide less protection than California’s. On September 25, 2016, Governor Brown signed Senate Bill 1241 (available here), which enacted new Labor Code section 925. Under that new provision, for contracts entered into, modified, or extended on or after January 1, 2017, an employer cannot condition employment on requiring an employee who “primarily resides and works in California” to sign a provision that either (1) requires the employee to adjudicate outside of California a claim that arises in California or (2) deprives the employee of substantive protections of California law for claims arising in California.

The measure originated in the California Senate as an employee and consumer protection measure that would have allowed a California employee or consumer to void contractual provisions that require adjudicating disputes out-of-state or under the law of a foreign jurisdiction. The measure was, at least in part, aimed at companies’ oppressive arbitration provisions that attempted to exploit the United States Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011). Many employers and businesses saw Concepcion as a green light to force employees and customers to resolve disputes in arbitration, in other states, and apply those states’ anti-consumer/anti-employee laws. As the bill made its way through the state legislature, lawmakers narrowed the bill’s scope to employment agreements. Importantly, the new law applies generally to all employment contracts and all forms of dispute resolution. As such, it is generally applicable, does not single out arbitration as a target, and therefore is likely not preempted by the Federal Arbitration Act.

The new law confirms California’s longstanding dedication to protecting employees’ rights, but it is not a sea change in the law. Indeed, the legislative history notes that some opponents of the bill questioned whether it was even necessary. Those opponents noted that California’s choice of law/choice of forum jurisprudence already allowed courts to invalidate such provisions if they would result in (a) litigation in an inconvenient forum or (b) applying law that conflicted with a fundamental California public policy. See e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 17 (1972) (choice of forum clauses may be invalidated if they effectively deprive the litigant of their day in court); Wash. Mut. Bank v. Super. Ct., 24 Cal. 4th 906, 916 (2001) (court may refuse to enforce choice of law provision when the other state’s law fundamentally conflicts with California public policy).

Yet, although section 925 is consistent with prior jurisprudence, it is still a needed protection for California employees. As the bill’s supporters noted, under existing jurisprudence, Californians were still obliged to demonstrate that (a) the forum was inconvenient and/or (b) that the applicable law conflicted with fundamental California public policy. Litigating those issues presented substantial burdens both legally and practically. That said, section 925 presents some unanswered questions, such as defining what it means for an employee to “primarily reside[] and work[]” in California and what qualifies as a “substantive protection of California law” that needs to be defended. Needless to say, section 925 is a welcome addition to the Labor Code that will provide the state’s labor force additional protection and ensure that they are not deprived of the protections of California’s substantive law.

Authored By:
Andrew Sokolowski, Senior Counsel