Companies with employees in California need to beware of a new law affecting employment agreements. Employees who primarily reside and work in California may soon be able to avoid litigating disputes with their employers outside of California.
Recently signed by California Governor Jerry Brown, the new legislation seeks to ensure that those living and working in California have the benefit of litigating any disputes in California and the protections of California law. The new law goes into effect on January 1, 2017 and only applies to agreements that are entered into, modified, or extended after that date.
What does this mean if you have employees in California? While there are several limitations and exceptions to the statute, employers should be wary of this new development and consider whether to modify any agreements, including non-compete and other restrictive covenant agreements, used with employees in California accordingly. If you have employees that “primarily reside and work in California,” you should review the agreements you require as a condition of employment that may contain forum selection or choice of law provisions. These agreements may need to be modified for use after January 1st to take into account the new legislation.
Looking back, this legislation appears to have arisen from a concern that California employees are required to litigate claims with their employers in other states, and to pursue claims under state laws that are less protective of employees than California law. This is often the case with restrictive covenants. Since non-competes are illegal in California, employers from other states often try to get around California’s law by including choice of law and forum selection provisions in their agreements with California employees. These clauses provide for application of the law of the employer’s home state and require the employee to litigate in the employer’s home state. Under the new California law, this workaround may no longer be possible.
As always, let us know if we can help or if you have any questions about the California law and its impact on your business.