California Law Protects Employees from Out-of-State Arbitration: What Employees Need to Know

By Katherine A. Rabago 

California has long been known as a pro-employee state protecting the rights of employees. One critical area of protection lies in ensuring that employees who live and work in the state are not forced to adjudicate disputes outside California. This protection is particularly relevant in the context of arbitration agreements, because employers often require employees to resolve their disputes in arbitration. While arbitration can be a fair and efficient process, some employers attempt to tip the scales by requiring employees to arbitrate in out-of-state locations and apply unfavorable out-of-state law. California law guarantees employees certain protections against this nefarious conduct, as explained below.

California Labor Code § 925 Prohibits Employers from Requiring Employees to Adjudicate Claims arising from In-State Employment out of California

California Labor Code § 925 explicitly prohibits employers from requiring employees to sign agreements that mandate:

1. Adjudication Outside California: Employees cannot be forced to resolve disputes arising from their California employment in another state.
2. Deprivation of California Law Protections: Employees must not be stripped of the protections afforded under California law in employment-related disputes.

If such a provision exists in an employment contract, employees can void it under Section 925, ensuring that any dispute is resolved in California and governed by California law. This safeguard applies as long as the employee primarily lives and works in the state and did not negotiate the terms of the provision.

Why Is This Important to Employees?

Imagine working exclusively in California, only to be told that you must travel to another state to arbitrate a dispute, under another state’s law. This could result in significant financial burdens, logistical challenges, and a reduced ability to pursue justice. Not to mention, it is illogical. You performed your work in California likely following the laws of California. Therefore, it is only fair that California law apply to your claims.

Indeed, California state and federal courts have consistently invalidated provisions requiring employees to arbitrate outside of California and/or under another state’s laws. These courts recognize that forcing employees to adjudicate elsewhere undermines California’s strong public policy of protecting its workforce. (See e.g., LGCY Power, LLC v. Superior Court (2022) 75 Cal.App.5th 844 [disputes involving California employees are litigated in California under California law, with no exceptions even if the employer has already filed an action in another state]; Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881 [California has a strong public policy interest in protecting the rights of employees whom provide services in California; this policy is deemed paramount to the competitive business interests of employers whether in- or out-of-state]; DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp. (9th Cir. 2022) 28 F.4th 956, 964 [forum-selection clause in employment agreement violated California law, and thus was void and unenforceable].)

Key Takeaways for California Employees

Know Your Rights: If your employment contract requires arbitration in another state, you may be able to void that provision under California Labor Code § 925.

Act Quickly: The ability to void such provisions typically hinges on acting promptly once a dispute arises.

Seek Legal Counsel: Understanding the nuances of arbitration agreements and California law can be complex, so consulting an experienced employment attorney is essential.

Conclusion

California’s commitment to protecting employees extends beyond wages and working conditions—it includes safeguarding access to justice. By ensuring that disputes arising from California employment are resolved in-state under California law, the state reinforces its dedication to fair treatment and equal access for all workers.

If you’re an employee who resides and works in California facing a dispute with your employer attempting to enforce an arbitration clause that requires adjudication outside California, remember: the law is on your side.