Many contracts include clauses that specify which state’s laws will be used to resolve any disputes between the parties and names the courts that will hear such disputes. These clauses, which are known as forum selection and choice of law clauses, have generally been upheld in California, but the courts may refuse to defer to another forum in situations where the rights of California residents would be significantly impacted by doing so.
California has comprehensive employee protection laws, and companies based in other U.S. states often include forum selection clauses in their employment contracts with California workers. Theses clauses are included to prevent California employment laws being applied in contract disputes between workers and their employers, but they have taken a significant hit by a May 2015 California Court of Appeals ruling.
The ruling was made in a case involving a salesperson who worked in the Irvine office of a Texas-based company. The worker filed a lawsuit seeking compensation for unpaid overtime, vacation pay and other violations of the California Labor Code. While a state court ruled that the employment contract’s clause requiring disputes to be adjudicated in Texas was enforceable, the appellate court ruled that such enforcement would diminish unwaivable rights provided to the worker by California law. This ruling means that employers in this type of dispute now have a burden to show that the enforcement of forum selection clauses will not diminish rights established by California law.
This case shows that inserting a clause into a contract does not necessarily mean that it will be upheld by the courts. An attorney may be able to scrutinize contracts and identify clauses that could be difficult to enforce. An attorney could also suggest alternative wording for such clauses that the courts may find more acceptable.