Employment disputes heard outside of California

Can employers require California employees to bring disputes in out-of-state courts?

On May 28, 2015, the Fourth District Court of Appeal reviewed a decision upholding an agreement for California employees to have their employment disputes heard in a Texas court. The court, in Verdugo v. Alliantgroup, L.P., 2015 Cal. App. LEXIS 466, concluded that the agreement was not enforceable.

In this case, Ms. Verdugo signed an employment agreement with Alliantgroup when she was hired. The agreement included terms that any legal dispute must be heard in a Texas court (forum selection) and that Texas law would be used to resolve it (choice of law). Ms. Verdugo filed a class action in Orange County Superior Court against Alliantgroup alleging violations of California law related to payment of wages, commissions, overtime, and vacation pay; wage statements, and meal and rest breaks. Alliantgroup requested dismissal or a stay of the case based on it not being filed in the Texas court. The trial court granted a stay. Ms. Verdugo appealed.

The court of appeal started with a review California law regarding forum selection agreements. Such agreements are favored as long as they are entered into freely and voluntarily, and enforcement would not be unreasonable or unfair. But a California court will not recognize a forum selection agreement if doing so would violate California public policy. In addition, the general rule is that a party who challenges a forum selection agreement has the burden of proving why it should not be enforced. But when the underlying dispute concerns unwaivable California law, the party who wants to enforce the agreement must show that doing so will not reduce the other party’s rights under California law.

The appellate court then decided that Alliantgroup had the burden to show that the rights of the employees under California law would not be reduced if the case were heard in Texas. The court in Verdugo pointed to California law, which provides that these rights cannot be set aside by an agreement. (Labor Code sections 219(a) and 1194.) If the case were heard in a Texas court, the rights could be lost if that court enforced the choice of law agreement and applied Texas, not California, law.

Next, the court of appeal concluded that Alliantgroup failed to meet its burden, i.e., to show that having the case heard in Texas would not reduce the employees’ unwaivable California rights. If Alliantgroup could show that Texas law was similar enough to California law with respect to these rights the forum selection agreement could be enforced. But the only argument made by Alliantgroup was that the Texas court would most likely apply California law despite the choice of law agreement for Texas law. This was not enough: Alliantgroup had to demonstrate that Texas courts had actually done this before or would do it in this case. Alliantgroup could have satisfied this requirement by agreeing with the employees to have California law apply in the Texas court, but it did not do so. Alliantgroup also failed to show that Texas law provides the same level of protection and remedies as California law.

As a result, the appellate court reversed the decision to stay the case, meaning it will go forward in the California court. This ruling will provide assurance to California employees who work for out-of-state employers that their California rights will be protected.

Posted by deanroyerlaw