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Thursday, 06 October 2016 17:24

SB 1241 Limits Employer's Choice of Law in Agreements with California Employees

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SB 1241, recently signed into law, and to go in effect January 1, 2017, will limit the ability of employers to choose a favorable law and forum when contracting with California employees. Specifically, the provision to be codified as California Labor Code Section 925, prohibits an employer from requiring California employees to agree to any provision which would require the employee to adjudicate outside of California for a claim arising in California; or deprive the employee of substantive protection of California state law as to a controversy arising in California. An exception does exist for those employees who are represented by counsel in negotiating the terms of an agreement. Moreover, pre-existing agreements (pre-January 1, 2017) will be unaffected.

Section 925 was enacted as a direct response to various work-arounds some employers have developed in the past, notably to circumvent certain unfavorable California laws, such as its general prohibition of non-competes and non-solicitation agreements (Cal. Bus and Prof. Code 16600, 16601, 16602, and 16602.5).

The full text of the provision is as follows --

SECTION 1. Section 925 is added to 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.

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201520160SB1241

Open to interpretation includes the terms of when an employee "primarily resides and works in California", as well as the qualification of when the law of another state might "deprive the employee of the substantive protections of California law".

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Tony Guo

As a specialized technology counsel, Tony supports his clients in the high tech, creative, and online industries. His primary areas of practice include intellectual property protection, Internet law, and startups. Tony is a USPTO registered patent attorney, as well as a licensed lawyer in California and Florida. He comes from a background involving considerable hardware and software development experience, having worked in both development and IT roles in the tech and finance industries.

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