On September 25, 2016, California Governor Jerry Brown signed a new law forbidding employers from requiring employees that primarily reside and work in California to sign an employment contract that:
- Obligates the employee to adjudicate claims arising in California outside of California; and
- Deprives the employee of the substantive protection of California law with respect to a controversy arising in California.
This new law applies to any contracts signed, modified, or extended on or after January 1, 2017. The law does not apply retroactively. The law allows for one exception: employees represented individually by an attorney when negotiating the terms of an employment contract that includes a forum selection clause outside of California are not protected. The practical effect of this law is that it forecloses, with few exceptions, outside employers from enforcing non-competition provisions against California employees for claims that arise in California.
Contract provisions that violate the new law will be voidable, and employees enforcing their rights under the new law can be awarded multiple remedies, including reasonable attorney’s fees. The new law applies equally to traditional litigation and arbitration.
Clients with employees that work or reside in California should remove the choice of law/venue clause from their contracts for those employees. It is not necessary to use a California choice of law/venue clause for disputes which “arise in” California. This will occur by operation of law. Clients should allow the facts to decide where the case will be resolved because it is possible that in many cases, clients may be able to dispute where the case actually arises.