New Law Forces Employers To Rethink Agreements with California Employees

10.10.2016

Companies with California workers need to be aware of a new law that affects employment agreements in that state.  Many businesses operating in California but headquartered elsewhere ask their California personnel to sign agreements that include terms requiring disputes to be resolved in the courts of and under the laws of the company’s home state.  California Governor Jerry Brown, however, recently signed into law Senate Bill No. 1241 (SB 1241), which restricts the use of such provisions in agreements with employees who primarily reside and work in California.

SB 1241, which will apply to contracts entered into, modified, or extended on or after January 1, 2017, will make voidable any part of an agreement between an employer and a California employee that:

1. Provides for the law of a state other than California to govern controversies arising in California (e.g., a choice of law provision requiring complaints to be litigated under the laws of the employer’s home state); or
2. Requires the employee to adjudicate a claim arising in California in a forum outside of California (e.g., a choice of venue provision requiring disputes to be litigated in the courts of the employer’s home state or before an arbitration panel in the employer’s home state).

If a contract term violates these prohibitions and is voided by the employee, the matter will be adjudicated in California under California law.  SB 1241 also empowers courts to award injunctive relief and reasonable attorney’s fees, among other remedies, to employees who enforce their rights under the new law.

Importantly, SB 1241 does not apply to contracts with employees who are individually represented by an attorney in negotiating the terms of an agreement selecting forum, venue, or choice of law for deciding disputes.  Accordingly, beginning January 1, 2017, employers should ensure that their California employees are independently represented by counsel if they do not want California law or venue to apply to employment agreements with those workers.