New Labor Code Section 925 Restricts Employer’s Rights

It goes without saying that the playing field between corporate employers and employees is not always level.  That disparity of power can result in employers imposing conditions of employment that create enormous hardship for an employee in the event of a dispute with her or his boss.  Among those conditions are terms that mandate where disputes are physically resolved and the law that applies, also known as choice of forum or law terms.

These provisions require a California-based employee to pursue her/his employment claims in another state, often applying non-California law.  The enormous financial burden to the employee, including having to hire out-of-state counsel and incurring large travel costs to attend remote legal proceedings, frequently results in the employee choosing to abandon her/his claims.  This is true even where the claims may have real merit.

Recently enacted Senate Bill 1241, signed by Governor Jerry Brown on September 25, 2016, creates a new Labor Code section that should even the playing field in many instances.

Effective January 1, 2017, Labor Code section 925 bars employers from requiring that an employee who lives and works in California agree, as a condition of employment, to a provision that would: (1) require the employee to litigate or arbitrate outside of California claims that arise in California; or (2) deprive the employee of the protection of California law with respect to a controversy arising in California. A contract that violates these restrictions is voidable at the employee’s request, and the matter would be decided in California under California law.

The law applies to contracts entered into, modified, or extended on or after January 1, 2017. However, it does not apply where the employee is individually represented by legal counsel in negotiating the terms of an agreement with respect to choice of law or forum.

If you are an out-of-state employer with California-based employees, it is critical that you review your employment contracts to ensure enforceability and compliance with Labor Code section 925.  It would also be prudent to require employees to seek attorney review of employment terms relating to forum and choice of law.  In this regard, it may be advisable for the employer to pay for that independent counsel review.

Please contact our office if you require guidance concerning this very significant change in California law.