In September of 2016, Governor Jerry Brown signed Senate Bill 1241, which adds Section 925 to the Labor Code. Labor Code §925 further restricts out of state employers from evading California’s strict employee protection laws.

Effective January 1, 2017, California Labor Code §925 restricts out of state employers ability to require employees who primarily live and work in California to litigate or arbitrate an employment related dispute in another state. Previously, some California courts had enforced forum selection clauses in employment related agreements, like proprietary rights agreements and non-competition agreements. Newly enacted California Labor Code §925 now permits an employee who primarily resides and works in California to void any forum selection clause in an employment related contract that mandates the employee litigate or arbitrate a claim in another state.

Employers and employees should note that the newly enacted law does not provide a straight prohibition on forum selection clauses. There are caveats. First, the law is elective and the employee must actually evoke it. Second, the law does not apply to claims that arise outside the state of California. Finally, the law does not apply to employees (typically highly compensated employees with negotiating power) who are individually represented by an attorney in negotiating the terms of their employment agreement including the choice of law and forum selection clauses, if any.

What employers should do now.

Employers should review their employment contracts to see if there is a forum selection clause, and if there is, they should also ensure that their employment contracts have a well drafted severability clause. It will take time for this new law to work its way through the courts as there are likely to be many challenges. Some employers will race to the courthouse in their locality to test the provision, while others may challenge its enforcement as it pertains to arbitration under the Federal Arbitration Act. Stay tuned.

California employees should note that the law merely allows the employee to void the specific forum selection clause, and not necessarily the entire employment agreement. California employees would also be wise to carefully read any employment offers and agreements, including all of the boilerplate, because until now employees could be forced (and in the future may still be forced) to arbitrate or litigate employment related claims far away from their home despite the tremendous cost and burden.