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.

 

Many San Francisco workers will receive their full salary for six weeks after the birth or adoption of a child, thanks to a new law passed by the San Francisco Board of Supervisors. San Francisco is the first city in the nation to mandate fully-paid parental leave.

The San Francisco law closes the gap left by California’s parental leave mandate. Under California law, employees who have paid into the state disability insurance fund may take up to six weeks of leave to bond with a new child. Those employees receive payments equal to 55 percent of their salary over the preceding five to 18 months.

San Francisco’s new parental leave law requires employers to make up the difference between the employee’s gross salary and the payments from the state disability insurance fund. In other words, San Francisco employers will be responsible for 45 percent of the employee’s salary during the six-week parental leave period. Together with the 55 percent paid by out of the state fund, employees will be paid their full salaries while bonding with a new child.

The state and city programs apply to same-sex couples, opposite-sex couples and single parents. Both mothers and fathers are eligible.

To be eligible for the benefits under San Francisco’s parental leave law, employees must meet certain requirements:

1. The employee must have been employed by their current employer at least 180 days prior to the start of the leave period;

2. The employee must perform at least eight hours of work per week for that employer in San Francisco;

3. The employee must work at least 40% of his or her weekly hours for that employer in San Francisco; and

4. The employee must be eligible to receive paid parental leave compensation under California’s program.

In order to receive benefits under San Francisco’s new law, employees must agree in writing to reimburse their employer the full amount paid if the employee quits within 90 days of returning to work after the leave period. Employees must also agree to allow their employer to apply up to two weeks of paid vacation leave to meet the employer’s obligation.

San Francisco’s new mandate will be phased in over time. Employers with 50 or more employees would be required to comply beginning on January 1, 2017. Employers with 35 or more employees would be required to comply beginning on July 1, 2017. Employers with 20 or more employees would be required to comply beginning on January 1, 2018.

The new ordinance also contains protections against retaliation. Employers are prohibited from taking any adverse action against employees in response to a request for parental leave. Adverse actions include reducing an employee’s wages, or threatening to do so; demoting or threatening to demote the employee; and discharging or threatening to discharge an employee.

Beginning on January 1, 2018, California will increase the benefits available under the state’s parental leave mandate. On that date, employees will be eligible to receive between 60 and 70 percent of their salary from the state disability insurance fund. At that time, the obligation of San Francisco employers will decrease. They will be responsible only for 30 to 40 percent of the employee’s salary during the six-week leave period.