August 23, 2019

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New Employee-Friendly California Law Limits Venue in Employment Contracts

September 25, 2016 was a happy day for many employees living and working in California. However, it wasn’t a good day for many employers with employees working in the state. This day saw the signing in of a new employee-friendly law that prohibits employers from providing contracts that apply laws from a different state.

For decades, employers have been able to circumvent California labor laws by requiring their employees to sign contracts or agreements that apply laws of different states. This has meant that any disputes that arise between employee and employer have been settled in courts outside California.

The new law however prohibits this. It eliminates the right of parties to choose the governing law for the obligations in their contract. They are also prohibited from choosing the venue where legal proceedings will be carried out under the contract.

Some other states have laws that sometimes prohibit provisions in contracts that would limit their application. However, Section 925, which comes into effect from January 1, 2017, is unique. This law is broad and sweeping over all venue and choice of law clauses that are included in contracts and agreements with individuals whose primary residence and place of work is in California.

Key takeaways

This labor law is not a retroactive law. This means that older agreements that already have a choice for non-California law and venue provisions will not be affected by the law.

New contracts or contracts extended on or after the 1st of January, 2017 will be come under the law Employers are therefore required to make changes to these agreements to ensure that they meet the requirements of the new law.

The new law also applies to out-of-state employees who may have worked in another state and were later transferred to California. The law also applies to employees who work remotely. As long as an employee lives and works within California, they are covered by this law. The magic words in the law are, ‘primarily resides and works’ within the state of California.

Employers can therefore no longer rely on the laws of other states to guide the terms of their agreements. They must now adhere to the labor laws in California, which are specific about issues such as anti-discrimination, minimum wage as well as parent leave.

If you will be renewing or entering into a new contract on or after January, 1 2017, it’s important to ensure that it complies with the new laws. Have a lawyer go over it to be sure.

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