Starting January 1, 2017, California Labor Code, Section 925 generally prohibits choice of law or venue provisions in employment contracts for California employees. Section 925 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:
(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.
(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney’s fees.
(d) For purposes of this section, adjudication includes litigation and arbitration.
(e) This section shall not apply to a contract with 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.
(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.1
Before Labor Code section 925, when out-of-state employers had full-time employees that live in California, the employers would often incorporate choice-of-law or venue selection provisions into employment contracts. Employees had to agree to these provisions as a condition of employment. The choice-of-law or venue locations typically had labor laws that were more favorable to the employer than California’s labor laws. For example, California law prohibits employers from requiring employees to waive their right to a jury trial before a dispute arises and also places significant limitations on arbitration agreements. California law also requires the reimbursement of certain business expenses, but many other states do not. Some out-of-state employers used choice of law or venue provisions simply to have uniformity throughout the company workforce and to create some litigation predictability. Labor Code section 925 severely limits this practice.
Interestingly, Labor Code section 925 does not render choice of law or venue provisions in employment contracts outright “void”; just “voidable by the employee.” This appears to give the employer some wiggle room in seeking to change venue to outside of California. It also specifically limits the prohibition on choice of law or venue provisions, “…as a condition of employment.” If an employer includes a choice of law provision in some other area of the employment contract, such as with an optional stock plan, the employer might be able to select a different state to adjudicate those types of disputes. Section 925 also does not apply (1) if the employee was represented by independent legal counsel who negotiated the terms of the employment agreement or (2) to any employment agreements entered into before January 1, 2017 (but it does apply to agreements that are modified or extended after that date.)
Many employment contracts include arbitration provisions as a means of resolving any disputes. California Labor Code section 925 expressly defines “adjudication” to include both litigation and arbitration. However, the Federal Arbitration Act preempts state laws, so an employer might be able to include an enforceable arbitration provision if the arbitration clause is governed by the Federal Arbitration Act.
What should an employee do if faced with a choice of law or venue provision in an employment agreement?
What steps should an employer with California employees take to ensure compliance with section 925? An employer should: