Here’s a post from new contributor Lee Szor. Welcome Lee!
Choice of law and forum selection clauses generally require that the laws of a selected state govern a dispute, and that the dispute must be litigated in that state’s courts. Employers based outside of California often include forum selection and choice of law provisions in agreements with California employees to try to avoid employee-friendly California courts and employment laws.
However, a May 28, 2015 California appellate court decision, Verdugo v. Alliantgroup, L.P., refused to enforce forum selection and choice of law provisions that restrict employees from pursuing claims based on unwaivable California employment rights. Verdugo involved a Texas employer who entered into an employment agreement with a California employee that contained forum selection and choice of law provisions invoking Texas courts and law. The employee filed a wage-and-hour class action against the employer in California superior court. The employer promptly moved to dismiss or stay the action. The trial court granted the motion and stayed the case. The employee appealed.
The appellate court reversed the trial court and refused to enforce the forum selection and choice of law clauses. As the party seeking to enforce the clauses, the burden was on the employer to show that the clause would “not in any way diminish Verdugo’s unwaivable Labor Code rights.” The appellate court suggested that the employer could meet this burden simply by stipulating to the application of California law. The employer refused to so stipulate, instead arguing that a Texas court would “most likely” apply California law to the employee’s claims pursuant to Texas’ choice of law doctrine, notwithstanding the forum selection and choice of law provisions.
That wasn’t enough for the appellate court. The employer’s refusal to stipulate that California law applied, according to the court, indicated that it would eventually seek to enforce the Texas choice of law provision, thereby diminishing the employee’s unwaivable California statutory rights under the Labor Code. Accordingly, the appellate court allowed the employee’s claims to proceed in California.
Takeaway: Out-of-state forum selection and choice of law provisions do not save employers from compliance with California’s unwaivable employee rights. Employers, even if headquartered or based out-of-state, should be sure that they are paying their California employees in compliance with the Labor Code. If they want to limit employees’ access to jury trials, the safer course involves mandatory arbitration provisions.