It is no secret that California labor laws are some of the most employee friendly in the nation. Because of this, many out-of-state employers with employees who work in California have attempted to prevent these employees from: a) pursuing legal action against the employers in California; and/or, b) asserting claims based on the California Labor Code. This has been accomplished by inserting choice of law and forum selection clauses in employment agreements, which require employees to litigate or arbitrate in a state other than California, and/or require that the trier of fact apply another state’s laws.
For example, few states have abolished employment-related non-compete agreements as has occurred in California. Therefore, to prevent a California employee from competing with the employer following termination of his/her employment, a Texas based employer may include non-compete language and require that Texas law be applied in any legal proceedings concerning the employee’s employment (where non-competition language is generally enforceable, with some limitations), and require that any disputes be heard by a Texas court or arbitrator.
California Labor Code §925 is a direct attack on such practices.
Legislative Policy and Purpose of §925
In a previous version of the bill that became §925, the stated legislative policy and purpose was to “ensure that all persons have the full benefit of the rights, penalties, remedies, forums, and procedures established in the Labor Code, and that individuals not be deprived of those rights, penalties, remedies, forums, or procedures through the use of involuntary or coerced waivers;” and to “ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Labor Code…is a matter of voluntary consent, not coercion.”[Emphasis added]. Click here for text. Although this language did not make it into the adopted version of the Labor Code, litigants involved in a dispute concerning the prohibitions of §*925 can anticipate that this new law will be construed broadly by California Courts for the purpose of safeguarding rights provided under California’s Labor Code, as indicated by these statements.
To this end, the adopted version of §925 expressly states that employers may not require, as a “condition of employment,” an employee to adjudicate their claims outside of California for claims “arising in California.” Furthermore, any agreement which violates §925 is “voidable by the employee” and if so voided, “the matter shall be adjudicated in California and California law shall govern the dispute.” If an employer nonetheless pushes a matter to trial, this new law also provides Courts with the ability to award reasonable attorney’s fees to employees who assert their rights pursuant to this Section. Therefore, employers who wish to insert forum selection and choice of law provisions electing a forum other than California or application of laws other than California run a real risk of seeing such language voided and attorney’s fees being assessed against them.
Applicability of §925
This new law expressly applies to employment-related agreements which are entered into, modified or extended on or after January 1, 2017. Therefore, agreements which predate this effective date are not affected, although there is case law to support the invalidity of the offending provisions in certain circumstances already. In addition, subsection 2(e) states that §925 is inapplicable to an employee “who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.” And, if an employee works in multiple states, but not primarily in California, the prohibitions of §925 are also inapplicable. One might also anticipate that California Courts may conclude that severance agreements, which are by definition not a condition of employment, fall outside the ambit of §925.
Apart from these exceptions, employers can expect that these stated prohibitions will be applied to all employment-related contracts and materials, including employee handbooks or manuals, at-will agreements, confidentiality and nondisclosure agreements, arbitration agreements, and invention and assignment agreements.
While California Courts have yet to interpret §925, it is clear that out-of-state employers who wish to insert choice of law and forum selection clauses which are contrary to this Section into their employment-related agreements for their California based employees, should, at a minimum, consider the following:
- Ensure that such agreements do not include language indicating that the terms of the agreement, or at least the prohibited clauses, are a condition of employment. It’s also likely best to affirmatively state that such clauses are not mandatory or a condition of employment (which could potentially leave the clauses open for attack on other grounds);
- Include express language indicating that the agreement was entered into knowingly and voluntarily by the employee (best to make such language conspicuous) and that the employee did not execute the agreement under duress or as a result of coercion;
- Most importantly, require that the employee retain California counsel to assist in negotiating the terms of the agreement and include language in the contract indicating that the employee has been represented by counsel during the negotiation process.
For out-of-state employers who do not wish to take these steps, removing the offending choice of law and forum selection provisions from their agreement will likely be necessary, or they may choose to include an addendum to their employment agreements with California based employees indicating that such provisions are stricken from the contract.
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