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New Labor Code §925 Mandates California Choice of Law and Forum Selection in Employment Agreements

Agreements with employees who are California residents and who work in California will soon be subject to the limitations on forum selection and choice of law in new Labor Code §925, which provides as follows:

(a)  An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1)  Require the employee to adjudicate outside of California a claim arising in California.

(2)  Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

These limitations apply to any contract “entered into, modified, or extended on or after January 1, 2017.”  Lab C §925(f).  Any contract provision that violates these limitations is voidable by the employee, in which case “the matter shall be adjudicated in California and California law shall govern the dispute.” Lab C §925(b).  Importantly, “adjudication” in this context includes both litigation and arbitration. Lab C §925(d). An employee may recover reasonable attorney fees in addition to injunctive relief and other available remedies. Lab C §925(c).

Note that Lab C §925 does not apply to a contract with an employee who is individually represented by counsel in negotiation of the forum selection or choice of law provisions of his or her employment contract. Lab C §925(e).

Labor Code §925 is apparently a response by the state legislature to California state and federal court decisions that have enforced arbitration clauses in employment contracts regardless of their forum selection or choice of law provisions. The new law should principally affect out-of-state businesses that hire employees in California. Those companies will no longer be able to designate an out-of-state forum or the law of another state to govern disputes under their employment agreements.

Further discussion of new Lab C §925 will appear in the next update of CEB's California Law of Contracts.