New Labor Code Section Helps Ensure California Workers Are Governed By California Law

By June D. Bell Oct 27, 2016
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When your company hires California residents to work in California offices, those employees will be doing something else in California, too: litigating or arbitrating any work-related disputes.

An addition to the state's Labor Code signed into law last month by Gov. Jerry Brown requires that claims be handled according to the Golden State's laws so workers benefit from their protections. Senate Bill 1241, which takes effect Jan. 1, affects new hires in 2017 as well as those whose employment contracts are extended or modified after Jan. 1.

What will become Section 925 of the Labor Code says that employers cannot require California-based workers to be governed by other states' laws. The language is new, but the concept isn't; it merely codifies case law from judges who have already weighed in on the issue.

"This is about California protecting its law and policy," said Jim McNairy, a partner in Seyfarth Shaw's labor and employment and litigation groups. He works in Sacramento and San Francisco.

The new law spells out policy clearly, which is advantageous to both employees and employers, said James Evans, a partner in the labor and employment group of Alston & Bird's Los Angeles office. "It creates a bright line," he said. "It's no longer case by case, circumstance by circumstance, court by court."

California Enforcement

The law will prohibit employers from requiring "an employee who primarily resides and works in California" to litigate claims outside the state and will make it illegal to deprive these employees of "the substantive protection of California law." Violators must pay the legal fees of employees who sue and win.

Other states' laws typically are more favorable to employers, so business owners based outside of California have preferred to litigate on friendlier turf. Some employers have compelled employees to sign mandatory arbitration agreements that are adjudicated under other states' laws. For California employees hired after Jan. 1, that's no longer an option. Contracts signed before then, however, aren't governed by the new law, though employers shouldn't expect any help from California courts with enforcement.

The only exception under the new law is if an employee is represented by an attorney in contract negotiations.

Employees represented in contract talks by an attorney are typically high-level executives who want legal expertise and can afford counsel. Should a California executive's contract apply the laws of a state other than California or proscribe that disputes be handled in another forum, it's important to note in the agreement that the executive was represented by a lawyer, said Margaret Keane, a partner in DLA Piper's employment law practice in San Francisco.

Review Policies

If HR professionals ever needed a reminder to review policies, here it is. This is particularly important if a company's employee handbook is used in multiple states. "Sometimes, something that might be perfectly acceptable in another state offends California law," said Evans, who noted that he has some clients with 50 different employment handbooks—one for each state.

To comply with the new section of the California Labor Code, employers should choose one of two options: Either have California-specific versions of forum-selection and choice-of-law agreements for employees who live and work in the Golden State, or use the same documents for everyone but specify clearly—with addendums or opt-outs within the text—which paragraphs do not apply to California-based workers.

If your company has commission agreements that roll over year after year, be sure to review them and redraft relevant language for California-based sales staff to reflect the new Labor Code section, Keane said.

Companies based outside of California should put procedures, checklists and safeguards in place for managers and satellite HR professionals to be sure that new hires are signing the appropriate versions of the company's employment contract, McNairy said.

On the flip side, HR professionals need to confirm that their hiring managers aren't inadvertently offering California's more lenient provisions to all employees. For example, noncompete agreements are unenforceable in California but permissible in most other states. There's no reason that employees in those states shouldn't have to sign them as a condition of employment, Evans said.

June D. Bell, a regular contributor to SHRM, covers legal issues for a variety of publications. Contact her at june@junebell.com.

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