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New Law Bans Forum Selection Clauses in California Employment Contracts that Apply Laws of Other States

California district mapIn almost any employer/employee relationship, an agreement between the parties governs the terms and conditions of employment, filling in the gaps not covered by local, state, and federal employment laws. These types of contracts rarely involve two parties with equal bargaining power. A longstanding legal principle holds that any provision in an employment contract that contradicts or violates an employment statute or regulation is unenforceable. The California State Legislature can enact laws targeting specific types of employment contract clauses. It recently enacted SB 1241, which takes effect at the beginning of 2017. This bill targets clauses that limit California employees’ ability to assert claims against their employers under California law, commonly known as “choice of law” or “forum selection” clauses.

In any lawsuit, a plaintiff must be able to establish that the court in which they have filed suit has jurisdiction over the defendant(s) and that the venue of the suit is proper. In most disputes filed in state court, a plaintiff must establish that the state of California has jurisdiction and that the county where the court sits is the correct venue. In a federal lawsuit, a plaintiff must establish the court’s personal jurisdiction over the defendant, its subject matter jurisdiction over the lawsuit, and the appropriateness of filing the case in that particular federal district. A defendant may object to the court’s jurisdiction, the venue of the case, or both.

Common jurisdictional questions include the jurisdiction of federal courts over disputes involving state law questions and the jurisdiction of a court in one state over a defendant who lives in another state. Choice of law clauses in written contracts allow the parties to agree in advance to both jurisdiction and venue in the event of a dispute that leads to litigation. For example, a choice of law clause might state that all disputes relating to the contract will be governed by California law and adjudicated in the courts of Alameda County. By entering into a contract with a choice of law clause, a party to a contract is generally deemed to have waived any and all objections to jurisdiction and venue, and to have agreed not to seek either in a different location.

SB 1241 prohibits choice of law clauses in certain employment contracts that would preclude employees from seeking relief in California courts or under California law. The bill applies to any employee “who primarily resides and works in California,” and it will govern any employment contract “entered into, modified, or extended on or after January 1, 2017.”

Any choice of law clause that, with regard to disputes arising under the employment contract and within California, requires adjudication anywhere outside California or “deprive[s] the employee of the substantive protection of California law” will be considered voidable by the employee. Cal. Lab. Code § 925(a). This applies to both litigation and arbitration of disputes. In addition to equitable relief, i.e., voiding the choice of law clause, an employee asserting a claim under this law may recover reasonable attorney’s fees.

Business litigation attorney James G. Schwartz has advocated for the rights and interests of businesses and business owners in the Bay Area for the past 40 years. Contact us online or at (925) 463-1073 today to schedule a free and confidential consultation with a member of our knowledgeable and experienced team.

More Blog Posts:

Ninth Circuit Invalidates Arbitration Clause in Website’s Terms of Use for Lack of Mutual Assent, Pleasanton Business & Commercial Law Blog, November 28, 2014

Corporate Managers Held Personally Liable by California Court for Tortious Interference in a Subsidiary’s Contract, Pleasanton Business & Commercial Law Blog, January 31, 2014

U.S. Supreme Court Finds that Selection Clauses in Commercial Contracts Are Presumptively Enforceable – Atlantic Marine Construction v. United States District Court for the Western District of Texas, Pleasanton Business & Commercial Law Blog, December 30, 2013

Photo credit: Kurykh (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons.