New Laws
Jan. 19, 2017
SB 1241: Choice of law in contracts
This bill has the stated purpose of protecting California employees by disallowing forum selection or choice of law provisions which would require an employee to litigate outside California or forego any "substantive" right under California law. By Graham Cridland
Graham M. Cridland
Ericksen, Arbuthnot, Kilduff, Day & LindstromLabor & Employment
100 Howe Ave Ste 110
Sacramento , CA 95825
Phone: (916) 483-5181
Fax: (916) 483-7558
Email: gcridland@ericksenarbuthnot.com
Georgetown Law School
Senate Bill 1241, signed into law by Gov. Jerry Brown in September, amends the California Labor Code, adding new Section 925. The new section has the stated purpose of protecting the substantive employment law rights of California employees by disallowing forum selection or choice of law provisions which would require an employee to litigate outside California or forego any "substantive" right under California law.
Section 925 makes any provision which restricts such rights voidable at the option of the employee. State Sen. Bob Wieckowski, D-Fremont, the sponsor of the bill, states on his website that "By removing the chilling effects that [forum selection and choice of law clauses] have on California employees, we are tipping the scale a little more toward justice in these forced arbitration proceedings."
Section 925 applies to contracts entered into on or after Jan. 1, 2017, and specifically exempts employment contracts entered into upon the advice of counsel. It is intended to apply to adhesion type contracts offered on a "take it or leave it" basis, not to arm's length negotiations involving represented parties. Section 925 applies to all employment contracts, not only employment arbitration agreements as cited by Wieckowski.
The law protects an employee who "primarily resides and works" in California. Thus, application of the statute may pose an issue of fact in the case of employees who have work arrangements touching on more than one state.
The law does not define the term "substantive protection of California law." However, it is not necessarily limited to statutory employment protections. While this undoubtedly includes the situation cited above with respect to a forum selection or choice of law provision, there will likely be litigation over what rules are now voidable if included in California employment contracts. Moreover, California employers - and employers in other states who employ persons who may be deemed to primarily reside and work in California - should be aware that SB 1241 allows for recovery of attorney fees in an action which successfully results in voiding employment contract terms.
California courts have been vigilant in protecting the rights of employees and have been ready to strike provisions which they find to be unfair in cases even before the enactment of Senate Bill 1241. Employment arbitration agreements, in particular, have been aggressively contested by employees and their counsel under the standard elucidated in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000). While SB 1241 was passed and intended as a limitation on forum selection and arbitration agreements, the language of the statute does not literally identify these issues. California employers, employees and counsel will have to resolve what effect, if any, this legislation has on other types of employment agreements in litigation to come.
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