In a development that applies to all businesses operating in California, Governor Jerry Brown recently signed a new bill which prohibits employers in California from requiring employees, as a condition of employment, to submit to the law of another state or foreign jurisdiction for disputes related to their employment.
Applicable to employees who primarily reside and work in California, the new law provides that employers may not include provisions in employment agreements that require the adjudication of claims outside of California, or apply another jurisdiction’s law to disputes arising in California. As an example, a New York business with employees in California could not include provisions that require disputes with such employees to be heard in New York courts or governed by the laws of New York. The law further provides that provisions in employment agreements that violate the foregoing prohibitions are voidable, upon request of the employee, and any disputes over a voided provision must be adjudicated in California courts under California law.
The law, known by its legislative moniker of California Senate Bill No. 1241, will become effective January 1, 2017 and applies to contracts entered into, modified, or extended after January 1st. It is viewed by many as an attempt to target mandatory arbitration provisions commonly found in employment agreements. Additionally, especially given the nationwide fight being waged to redefine many franchisees as “employees” of the franchisor, this new law has the potential to void common choice of law and forum provisions in franchise agreements entered into the California residents. This law is sure to be challenged, as it seems to fundamentally assault the ability of employers and employees to bargain freely, so stay tuned.
Thanks to Evan McGillan for his research and drafting assistance for this post.