SACRAMENTO — The new year means a new labor code provision in California where employers are now prohibited from insisting  that disputes with employees who live and work primarily in the state be resolved using another state's law or court system.

Signed into law in September by Gov. Jerry Brown, California Labor Code Section 925 requires that all employment contracts in the state must stipulate that the job-related issues that arise in California must be resolved in the state, according to leginfo.legislature.ca.gov.  Also, employees tangled in such matters would be granted the full protection of California laws.

The latter change would especially impact employers who include provisions that are only covered by other states in the contract agreements they provide their employees.

The new law applies to all companies operating in California, no matter where their company headquarters  are located.  

As a result, employers based outside of California are being encouraged to review all their employment contracts to ensure they are not violating the new provision. 

Before the new measure went into effect, employers could require employees to settle legal work-related matters outside the state and without the full protection of California laws. These terms, which were commonly known as forum-selection or choice-of-law provisions, used to be considered legal pre-conditions in contract agreements.

The changes must be included in employment contracts entered into on or after Jan. 1. This also protect agreements with employees slated for extension on that date.

Any employment contract that fails to comply with the new California labor code would be considered voidable upon the request of the employee. 

Section 925 is the first labor provision to implement a ban on the widely followed system of choice-of-law and venue provisions; however, it does have its limitations.

The new law does not cover an employment contract dispute that involves an employee who is “individually represented by legal counsel in negotiating the terms (of the) agreement.” In other words, if a potential employee retains a lawyer to negotiate an employment agreement initially, they would not be covered by this law unless the lawyer specifically negotiated it into the contract. As a result, the provision  is expected to become a key part of executive employment agreements as well as settlement agreements.

Another limitation is that the provision cannot be applied retroactively. Older employment agreements may still retain provisions that include non-California venues and choice of law arrangements; and those provisions are still enforceable by law. 

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