In 2016, the California legislature enacted Labor Code Section 925 which prohibits an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

• Require the employee to adjudicate or arbitrate outside of California a claim arising in California.

• Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

Any provision of a contract that violates this statute will be voidable by the employee.  If a provision is rendered void at the request of the employee, the matter must be adjudicated in California and California law must govern the dispute.

Yesterday, a California Court of Appeal held that Section 925 provides an exception to California’s compulsory cross-complaint statute (Code Civ. Proc., § 426.30) such that an employee who comes within section 925’s purview may file a complaint in California alleging claims that are related to the causes of action that the employer has already filed against the employee in a pending action in another state.  The Court of Appeal also held that California does not have to afford full faith and credit to the other state's compulsory cross-complaint statute even when the employer's related action was filed first and is still pending.  LGCY Power v. Superior Court, 2022 Cal. App. LEXIS 168. 

The Court based its decision on the fact that judgments are treated differently under the Full Faith and Credit Clause of the United States Constitution (U.S. Const., art IV, § 1) than statutes.  The Court was undeterred by the fact that its holding will result in actions proceeding in different states with the parties racing to be first to obtain a judgment that will become res judicata as to the other action.  Thus, the race will not be to the courthouse but to judgment.    

For earlier posts on Section 925, see New California Law Threatens To Destroy Plan Uniformity, Copenhagen Counsel Causes Choice Of Delaware Law and New California Labor Code Statute Results In Enforceable Covenant Not To Compete.