California: Buy Local on Resolving Employment Disputes

Employers with operations spread across several states often like to centralize all dispute resolution with employees in a single state – say, where their corporate headquarters is based.  It can trim legal defense costs and hedge against a runaway jury.  We’ve written about it several times before (cost-effective dispute resolution systems, forum selection and venue selection).  But don’t count on every state to respect what the employer and employee agree to.  The Golden State now won’t.

California Labor Code Section 925 wipes out that choice for employees who “primarily” work and reside in California.  An employer can’t pick another state’s law for that employee or push dispute resolution to another state.  Everything must stay local.  That applies to all kinds of employment agreements and arbitration policies. 

There’s good news.  Existing agreements and arbitration policies get grandfathered in, so long as they were around before the law went effective on January 1, 2017.  Modifying or extending the agreement or arbitration policy, however, subjects it to the new law.  No longer would the grandfather clause save it.

Bottom line: Always check state law before rolling out a centralized dispute resolution system.  Not every state will go for it.