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NO MORE HOME FIELD ADVANTAGE: California Senate Bill 1241 By Shannon Jenkins, Partner

According to California’s Legislative Analyst’s Office, California has the eighth largest economy in the world, beating out the economies of Russia, Canada, and South Korea.  California is an environment rich with possibilities, however there are some pitfalls of which businesses need to be aware.

One such potential pitfall is California Senate Bill 1241, which at the time of this writing, has passed all policy and fiscal committees and is awaiting ratification upon the return of the State Legislature from summer recess on August 1.  SB 1241 in its essence provides that companies that sell products in the state of California, allow people in California to buy products on its website, or hire employees in California, will no longer be allowed the ability to designate another state’s laws.  Under SB 1241, companies will no longer be allowed to pre-select the venue for any dispute that may arise between themselves and their consumers and/or employees.  For example, many companies utilize a Terms and Conditions of Use clause on their website.  Usually there is a clause contained within the Terms of Use outlining the state law that will control any disputes and where actions can be brought.  Should a dispute between a company and a consumer in California occur, the proceedings would be subject to California law, which are notoriously pro-consumer and anti-business.

The stated goal of SB 1241 is to ensure that consumers and employees are not deprived of the protection of California law or their local courts with respect to any issues that may arise, whether it be litigation or arbitration.  Employees and consumers would no longer be forced to agree to provisions that allow companies to dictate where resolutions of disputes would occur, and what laws the resolutions would be subject to.  For example, a company is headquartered in Iowa and has a consumer affairs dispute with a resident of California.  Under SB 1241, the dispute would be subject to California law and take place in a California courthouse since the consumer resides in California, despite the fact that the company is headquartered in Iowa.

SB 1241 applies to all consumer or employees contracts entered into after January 1, 2017, as well as any contracts modified or extended after January 1, 2017.  For example, an employee of Microsoft files a wrongful termination lawsuit in California.  According to his contract, which he signed in June 2015, he was supposed to be employed through June 2018.  After working for two years, the employee’s contract was modified to include an increase of the employment period to June 2019.  The dispute would be subject to California’s Labor Code, despite the fact that Microsoft is headquartered in Washington and the fact that the contract was entered into in June 2015.   Furthermore, SB 1241 allows a court to award the consumer or employee who is enforcing their rights reasonable attorneys’ fees in addition to any other damages available.

Fortunately, there is one beneficial exception for businesses.  The authors of SB 1241 ensured that the bill provides that the law does not apply to an employee contract where the employee is individually represented by an attorney that is negotiating the terms of the contract.  This means that the employer can in that case include a provision that designates the venue or forum in which a controversy arising from the employment contract may be adjudicated, which in turn makes it much easier for any in-house counsel to prosecute and/or defend any legal actions.

Essentially, should SB 1241 be enacted, out-of-state companies that conduct business in California would no longer have the current “home field” state protections they enjoy.  It is now more imperative than ever to ensure that any and all employment contracts, consumer agreements and other common contracts reviewed by an attorney.

If you have any questions, please contact Shannon Jenkins at sjenkins@tldlaw.com or (949) 756-0684.

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