California has several new employment laws on the books, at least one of which may affect employers issuing employment agreements now deemed “against public policy.” Assembly Bill 465, effective January 1, 2017, adds a new section to the Labor Code that prohibits employers from compelling employees to resolve employment disputes outside of California. Such provisions are now void as against public policy.
Earlier legislation allowed employers based outside of California to require, as a condition of employment, that employees resolve disputes in courts or arbitration proceedings where the company was headquartered. This meant employees would often be forced to litigate or arbitrate claims occurring in California in another state, and usually applying that state’s laws.
Under the new law (Labor Code section 925), an employee who signs employment contracts as a condition of employment after January 1, 2017 cannot be required to agree to clauses compelling litigation or arbitration outside of California. The intent of the Legislature was to provide all persons the same rights and remedies under the Labor Code and not deprive anyone in California of these rights and remedies through waivers in employment agreements. Further, the employer may not include provisions depriving the employee of the protection of California law for a dispute arising in California. Section 925 will have a substantial impact on the manner in which many in state and out of state businesses settle employment disputes.
Exceptions to section 925
Section 925 has some exceptions. For example, it only applies to contracts that are a condition of employment. It does not apply to contracts negotiated by a prospective employee’s own attorney (typically executive contracts), and it does not apply to contracts with an “opt out” provision — a period of time during which the employee may choose not to enter into an agreement before it becomes effective. Contracts negotiated by the employee’s attorney should include language explaining the employee’s role, which serves as part of the record to protect employers from potential litigation under section 925. Employers are advised to consult with legal counsel to review and amend existing contracts and to revise standard language for future hiring contracts. Failure to do so may lead to litigation and the prevailing party (here, the employee seeking to litigate in California under section 925) may be entitled to attorneys’ fees.
Moreover, employers would be wise review any contracts that are automatically extended from year to year, as those contracts would be subject to section 925. Moreover, any agreement that allows parties to renegotiate an employee’s salary each year is also subject to section 925. Thus, existing and future contract language should be revised to provide for arbitration and litigation in California, under California law.
For more information on section 925, or to discuss your business’s arbitration clauses, contact experienced business attorney Drew E. Pomerance today.