Thursday, November 17, 2016

New Law Requires Disputes with CA Employees to Be Resolved in CA Under CA Law


On January 1, 2017, the California Labor Code will be amended to require employers to ensure that disputes involving employees who reside and work in California to be adjudicated in California under California law. That sounds reasonable but it is currently not common practice. Sometimes California employers offer their workers agreements that require disputes to be resolved in another state.  Normally, this is because another state's law is more favorable to employers than California law.

Current law:

California courts are already empowered to refuse to allow moving the case out of state if doing so would substantially diminish the rights of California residents. But Senate Bill 1241 makes that rule even stronger by actually spelling it out in the amended Labor Code. Specifically, existing law:

1) Permits California courts to exercise jurisdiction on any basis not inconsistent with the state or federal Constitutions. A court is also authorized to stay or dismiss most actions in which it finds “that in the interest of substantial justice” the action should be heard in a forum outside of California.
2) Allows the court to refuse to enforce the contract or the unconscionable clause.
3) “Unconscionability is defined through both a ‘procedural’ and a ‘substantive’ element, the former focusing on ‘oppression’ or ‘surprise’ due to unequal bargaining power, the latter on ‘overly harsh’ or ‘one-sided’ results.”
4) Holds that forum selection clauses will be enforced only so long as California residents will not find their substantial legal rights significantly impaired by their enforcement.

New law:

On January 1, 2017, Senate Bill 1241 will prohibit employers from requiring an employee who resides and works in California to adjudicate disputes outside the Golden State and/or under the law of a state other than California. That bill will amend  Section 925 of the  Labor Code to read:

925. (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.
(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.

Therefore, any provisions in employment agreements entered into, modified or extended on or after January 1, 2017 that violate Section 925 can be voided at the request of the employee.   The updated statute also provides a way for the employee to be awarded attorneys’ fees.

Note that, according to Sec. 925(e), the mandatory California-only choice of law does not apply to contracts entered into with an employee who was represented, individually, by legal counsel during the negotiation of the terms of a work agreement containing forum selection and choice of law provisions.