California has famously strong worker protection laws. But every day, big companies regularly sidestep those laws with impunity by forcing employees to sign away the right to sue the employer in California or under California law.

Now, with the passage of a new section of the state’s Labor Code, California is sending those companies a clear message: We won’t let you get away with it any longer.

Newly added Labor Code section 925 prohibits employers from requiring employees who primarily reside and work in California to agree to any contract provision that would either (1) deprive the employee of California’s substantive legal protections with respect to a claim arising within the state, or (2) require the employee to travel to another state to bring a claim arising within California, if agreeing to either provision was a condition of employment.

Employers have long buried these so-called “forum-selection” and “choice-of-law” provisions in the fine print of thick, grossly one-sided agreements that applicants and employees are told they must sign if they want to get hired or keep their jobs.

But under Labor Code 925, such contract terms will voidable by the employee if they are contained in any contract entered into, modified, or extended on or after January 1, 2017.

Evening the playing field for Californians 

The average job applicant or consumer presented with a contract heavily favoring the big company on the other side of the table has zero bargaining power and only two choices: take it or leave it. California and federal courts have long recognized the patent one-sidedness of such agreements (sometimes referred to as “adhesive” contracts) but generally enforce them under the legal fiction that the individual knowingly and voluntarily assented to each and every term in exchange for the desired employment, product or service. This is true even where a job applicant could lose his home if he doesn’t get hired right away, and even if he didn’t read and understand every clause before he signed.

But courts cannot enforce illegal contract terms and Labor Code 925 makes illegal the exploitive provisions described above. Employers will no longer be able to exploit their upper hand by forcing employees to sign away their rights litigate or arbitrate in California or under California law.

Forum-selection and choice-of-law clauses in action: A case study

The enactment of Labor Code 925 is a watershed moment in worker advocates’ struggle to bring big corporations to heel. It’s an important issue because these clauses, which are present in almost every modern employment contract, can cripple a worker’s future legal claims from the moment of hiring.

Consider the following hypothetical:

Lucy is a longtime administrative assistant in the San Francisco office of a large national company headquartered in Ohio. Her new supervisor harasses her and discriminates against her based on her gender and sexual orientation. Lucy reports his conduct via the proper channels—and is promptly fired on trumped-up policy violations. She eventually manages to find a new job with longer hours and lower pay, but only after several months of desperate searching.

Lucy seeks help from an attorney near her home in Oakland. The attorney reviews Lucy’s paperwork and tells her that under California law she has several viable claims against her former employer. However, the attorney then informs Lucy that a choice-of-law clause buried in her employment agreement provides that any claims against the company must be decided under the laws of Ohio—which has no state law prohibiting sexual-orientation discrimination in the workplace.

To add insult to injury, the attorney tells Lucy that because of a forum-selection clause also buried in her contract, if Lucy wants to pursue her case she’s going to have to fly back and forth to Cleveland—and hire a new Cleveland based attorney.

Lucy now faces the prospect of cross-country litigation and all the expense, life disruption and missed work that will entail. Add in the uncertainty and stress of an uphill legal battle against an opponent on its home turf, and most people in Lucy’s shoes would simply walk away. And that’s precisely the point.

A few caveats and questions

It’s important to note that Section 925 gives only an employee who “primarily resides and works in California” the option to void a prohibited clause. It appears that both the employee’s residence and workplace must be within California in order for section 925 to apply. However, the definition of “primarily resides and works” is not specified and may end up being decided in court.

Moreover, section 925 will apply only to provisions in contracts that are entered into, modified, or extended on or after January 1, 2017. And the employer must have required the applicant or employee to agree to a provision as a condition of his or her employment. If an employee has the choice to opt out of the offending term without consequence, then section 925 may not apply.

Finally, section 925 does not apply to employees who are in fact represented by legal counsel in negotiating the specific issues covered by the choice-of-law and forum-selection clauses.

California stands up for its employees once again

Labor Code section 925 started as California Senate Bill 1241, which was enacted on September 25. SB 1241 is one of several new employee protections passed by the California legislature and signed by the governor at the end of September.

Attorney Eric A. Grover of Keller Grover LLP applauded the legislature and governor for enacting this important piece of legislation. “By curbing the power of out-of-state employers to set the rules of the game, California has reinforced its commitment to the protection and fair treatment of its workers,” Grover said.