A new statute has been added to the Labor Code (§925) which prohibits employers from requiring employees to agree to a provision requiring them to bring claims arising, either in court or before an arbitrator, in a jurisdiction other than California. The new statute also prohibits an employer from requiring employees to agree to a provision which deprives the employee of the substantive protections of California law in any lawsuit or arbitration. This means that employers cannot require employees to sign employment agreements, including arbitration agreements, confidentiality agreements, etc., which state that the matter will be adjudicated in another state or that the law of another state will govern any litigation or arbitration dispute.
This new statute applies to an employee who “primarily resides and works in California.” While the statute does not differentiate between the level of the employee, it does exclude contracts when the employee is individually represented by legal counsel in negotiating the terms of the contract. This will generally mean a higher level employee. While the law does not apply to contracts where the employee is individually represented, there are no guarantees that a California court will uphold a legal challenge to such contracts so they should be cautiously approached.
There are teeth in the new statute which provides that any contract requiring the employee to adjudicate his or her claims in another state or apply another state’s laws is voidable by the employee and provides that a court may award attorney’s fees to an employee who enforces his or her rights. The dreaded attorney’s fees language – a motivation for plaintiff’s attorneys to file lawsuits.
Presumably, if another state has the same substantive law in a given area, the employer could designate that other law would apply but in the employment area, chances are that California’s laws are tougher. This is an area where legal counsel should be consulted.
This new statute is effective January 1, 2017 and applies to any contract entered into, modified or extended after that date.
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