New California law says employment contracts can't take disputes outside the state

By Taryn Phaneuf | Oct 13, 2016

SACRAMENTO, Calif. (Legal Newsline) — Beginning in 2017, employers can’t require employees who work in and primarily live in California to bring disputes outside California.

The law, signed by Gov. Jerry Brown Sept. 25, adds a section to the California Labor Code. It applies to contracts entered into, modified or extended after Jan. 1. Such a requirement would show up in employment contracts or offer letters. The law also prohibits placing a dispute under the law of another state or foreign jurisdiction.

The law clears up an issue that arises with employers who are headquartered in other states or other countries, codifying a principle that, until now, typically was established in court or arbitration during a dispute, Sandra McCandless, head of Dentons’ employment and labor practice in California, told Legal Newsline.

“This statute was intended to provide certainty for employees,” McCandless told Legal Newsline.

“Employees desire to have arbitration or litigation in their own jurisdictions.  Employees have often prevailed in disputing the application of another state's law or venue in the past, but now a statute specifically provides for that result."

The goal of the law is to ensure California employees aren’t deprived “of the substantive protection of California law,” the bill stated. A provision that violates the law can be voided by the employee.

While other states apply a similar principle, McCandless said she’s not aware of any of them passing a law that specifically codifies the principle. And not everyone will be pleased with California taking that step.

“There will be national and international employers who don’t like this law,” McCandless said, adding that California is “the most pro-employee” state with unlimited punitive damages in some cases. “California law is much more generous than laws in other states.”

One exemption exists for employees who are represented by legal counsel during employment negotiations. In that situation, an employee could agree to arbitration or litigation in another jurisdiction.

That exemption is more significant for high-ranking, highly paid workers who would bring an attorney to negotiations, McCandless said. For the average employee who doesn’t hire counsel when considering a job offer, the new requirement is in place.

The law allows courts to award reasonable attorneys fees, too. This provision creates an unknown and could have the biggest impact, McCandless said.

Providing attorneys fees makes it easier for employees to find a lawyer willing to take their case, which increases the likelihood of claims being filed. At this point, it’s unknown in what circumstances attorneys fees will be awarded.

“What will that mean going forward? It’s not clear yet,” she said. “As laws get passed, over the years, they get broader and broader in their application.

She believes attorneys who represent employees will push for a broad interpretation.

“They’ll be looking at this and looking for how they can get attorneys fees,” she said.

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