Does Section 925 apply to all employment contracts with California employees? However, it is not clear how Parliament`s reasoning will protect section 925 from challenge under the FAA if an employee challenges an employer`s choice of the FAA as the applicable law for the agreement. The Supreme Court has ruled that binding arbitration agreements governed by the FAA are enforceable under the standards set out in the FAA and that the FAA preempts state laws that contradict it or constitute an impediment to the realization of federal law. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 356 (2011) While there are no Delaware cases dealing directly with this point, it is also likely – given the justification for the opinions of the Court of Chancery discussed above and Cal`s adoption in California. Rennet. Code § 925 (a) – that Delaware courts will apply California law to strike down competition and non-consolidation provisions in an agreement between employers with their principal place of business outside of California and their employees who live and work primarily in California, notwithstanding the existence of a Delaware choice of law provision. For example, § 925 issues may arise if an employer has taken steps to enforce the choice of law or venue provision of an agreement in a court outside of California. But California courts were generally reluctant to issue injunctions that prevented a party from exercising their right to appeal to another court. In the context of attempts to enforce the non-competition provisions made under Cal. The bus would suck. & Professions Code Section 16600, the California Supreme Court has ruled that a California court cannot order an employer to use another state`s court to enforce a non-compete obligation, or prevent a foreign state court from taking legal action to enforce a non-compete obligation. See Advanced Bionics Corp.c.
Medtronics, Inc., 29 Cal. 4th 697, 707-708 (Cal. 2002). Similarly, federal courts have rejected the idea of using Section 16600 as the basis for a court to order another court. See Bennett v. Medtronic, Inc., 285 F.3d 801, 807 (9th Cir. 2002). It is difficult to see why a California court should prohibit an injunction under Section 16600 but allow an injunction under § 925. However, Section 925(b) states that a non-California jurisdiction or choice of law provision “may be challenged by the employee, and if a provision is declared void at the employee`s request, the matter will be decided in California and California law will govern the dispute.” Thus, the new law provides a scenario in which the employee can choose not to rescind the provision, thereby choosing to hear their dispute outside of California or settle non-California law.
In this scenario, the provision could not be illegal. In fact, legislative history shows in S.B. 1241`s distinction from previous bills that were not upheld that “unlike these bills, this bill would render the choice of law and choice of jurisdiction provisions of the employee null and void and would not automatically be null and void and unenforceable.” See Senate Judiciary Committee, April 25, 2016 Yes, but only if an employee is represented individually by a lawyer when negotiating the terms of the contract. In such event, the Agreement may include enforceable jurisdiction outside of California or a choice of law provision. But even in the context of this exception, there are many questions about the meaning of “negotiation.” Most agreements allow the parties to choose a forum to plead or settle a dispute. According to S.B. 1241, employers are prohibited from requiring an employee who resides and works primarily in California as a condition of employment to agree to contractual terms that: 1) require the employee to represent or arbitrate claims arising in California in a foreign forum (outside of California); and 2) deprive the employee of the protection of California labor laws. The new law also includes, but is not limited to, executive contracts, agreements and non-compete obligations. California`s strict public policy against the application of restrictive agreements, enshrined in its Business and Professional Code, states that “any contract that prevents anyone from carrying on any legal profession, business or business of any kind is void to that extent.” Callus. Bus.
& Prof. Code § 16600. California also recently amended its labor law to prevent employers from requiring their California-based employees to make contractual arrangements that: “(1) [r]equine the employee to decide outside of California a claim arising in California; or (2) invoke the employee on the material protection of California law with respect to a controversy arising in California. Callus. Rennet. Code § 925(a). Similarly, these provisions on choice of law and jurisdiction in contracts concluded before 1 January 2017 may be considered voidable if the contract is amended, supplemented or amended after that date. The employer`s plaintiff, NuVasive, Inc. (NuVasive), was a Delaware corporation operating in California. The accused employee, Patrick Miles, was a fifteen-year-old high-ranking NuVasive employee. During his tenure at NuVasive, Miles lived and worked in California. He served as President and Chief Operating Officer of NuVasive and later became Vice Chairman of the Board of Directors of NuVasive.
In this new role, Miles signed an employment contract in September 2016. The agreement included a non-compete commitment, under which Miles agreed “not to provide services to companies operating in any division or type of business operated by NuVasive or its subsidiaries for one year after termination of its employment.” If the contract chooses a non-State location for the settlement of disputes under the arbitration agreement, this could also trigger the application of article 925. However, it should be noted that for the purposes of arbitration agreements with most employees, it would be very difficult to enforce the choice of a very impractical and remote place of arbitration, both under the rules of the American Arbitration Association and under generally applicable law prior to the enactment of section 925.8 Therefore, whether the prevention of this type of repressive selection of the place is the motivation behind the law. What the California legislature did was arguably unnecessary and similar to using a shotgun to kill a fly. Although the employee referred to “my lawyers” in an email dealing with the non-competition clause, the employee later provided unresolved statements that he did not have a lawyer and that he had used this phrase as a bargaining tactic. Based on the court`s presumption that the employee was not represented by counsel, the court ruled that section 925 was applicable. However, the court noted in its notice that when it upheld the District Court`s decision to issue the injunction, the First Circuit first reviewed Massachusetts` choice of law rules to determine whether the court could legally enforce the choice of law provision in the Day Agreement. Massachusetts, the court said, applies the choice of law provisions in employment contracts, unless one of two exceptions applies: (1) the parties have no substantial relationship with the chosen state, or (2) the application of the law of the chosen state would contradict a fundamental policy of a state that has a much greater interest in enforcing its law.
NuVasive was founded in Delaware, a complex that the court found sufficient to establish a relationship with the state, so the first exception was not applicable. In determining whether the second exception was applicable, the court first turned to the MNE to determine whether the application of the non-solicitation agreement would be contrary to Massachusetts public policy. The parties negotiated the employment contract in California. The parties assumed that the agreement would be implemented in California. Nevertheless, the agreement contained a Choice of Delaware Law and a jurisdictional provision. Miles was represented by a lawyer during the negotiation of the agreement, and the court assumed that the lawyer had reviewed and negotiated these choice of location and choice of law provisions. This choice of law was important because, unlike California law, Delaware enforces the appropriate agreements to avoid competing and is committed to strong public policies in favor of freedom of contract. SB 1241 applies not only to confidentiality agreements, but also to employment contracts, bonus and commission plans and arbitration agreements. However, it may not apply to many of the most important specialized individual employment contracts that employers enter into, including those with senior managers, as these individuals are often represented by lawyers in negotiations.
However, this creates a difficult and largely unpredictable phase in which the parties can contract. Should the parties anticipate any conceivable “controversies” that might arise between them, and compare the laws of the two states and somehow “know in advance” whether the outcome would be different under California law or the chosen law? Realistically, that would be an impossible task. And therefore, the practical effect is that an employer has little choice but to assume that, in most cases, it cannot apply the law of another State. Can an arbitration agreement be used in lieu of litigation to avoid section 925? Does the exception only apply if some of the terms of the contract are actually negotiated by an employee`s legal counsel, as opposed to an agreement that is simply reviewed and signed by the lawyer? If negotiation of terms is necessary, it appears that the exception applies only to agreements of well-paid workers who hire a lawyer for the purpose of negotiating and drafting favourable terms. .