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Employers Beware:  Section 925 Grants Employees Broad Power to Void a Forum-Selection Clause

Posted by Timothy B. Del Castillo | Nov 14, 2020 | 0 Comments

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Recently, in Midwest Motor Supply Co. v. Finch, the Court of Appeal found that an employee's right under Section 925 of the Labor Code to void a forum-selection clause in an employment agreement is triggered when a modification to any provision of the agreement occurs on or after January 1, 2017.  In so finding, the court rejected the employer's argument that Section 925 is limited only to modifications to the forum-selection clause itself.

Background

The plaintiff, Patrick Finch, began working for Midwest Motor Supply Co. (“Midwest”) in October 2014.  The parties entered into an employment agreement, which contained a forum-selection clause designating Franklin County, Ohio as the required venue for any action relating to the employment agreement.

Midwest modified the terms of Finch's compensation plan three times after he began working in 2014.  The first revision occurred in 2016, another in 2017, and a final revision in 2018.  Each time Finch's compensation was modified Midwest provided him with a Compensation and Annual Letter reflecting the changes in compensation.  The revisions were incorporated into the 2014 agreement based on a statement in Exhibit C attached to the agreement, directing the parties to reference the Compensation and Annual Letters for details regarding Finch's compensation.

In September 2019, Finch filed a lawsuit against Midwest, alleging violations of the Labor Code, the Business and Professions Code, and a claim under the Private Attorneys General Act (“PAGA”).  Midwest filed a motion to dismiss, or alternatively, stay the action on the basis of the forum-selection clause in the employment agreement.  The trial court denied the motion, finding that the modifications to Finch's compensation in 2017 and 2018 modified the employment agreement, thereby triggering Finch's right to void the forum-selection clause under Section 925 of the Labor Code.  Midwest filed a writ of mandate in the Court of Appeal.

Court of Appeal's Decision

Section 925 of the Labor Code enables an employee who primarily resides and works in California to void a provision in an employment agreement requiring the employee to adjudicate elsewhere a claim arising in California.  Section 925 applies to any contract entered into, modified, or extended on or after January 1, 2017.

In a case of first impression, the court considered whether Section 925 applies to any modification to a contract or is limited only to modifications to the forum-selection clause.  Based on the plain text of Section 925, the court found that an employee may void a forum-selection clause contained in a contract that is modified on or after January 1, 2017 regardless of whether the modification is to the forum-selection clause specifically.  In other words, any modification to any part of an agreement that occurs on or after January 1, 2017 triggers an employee's right under Section 925 to void a forum-selection clause contained in the agreement.

The court reasoned that the “plain and commonsense” text of Section 925 makes clear that an employee may void a forum-selection clause when a “contract” is modified, entered into, or extended on or after January 1, 2017.  According to the court, the use of the word “contract” is plainly understood to mean “every promise agreed to as part of a transaction.”  The court found nothing in the plain text of the statute to indicate that its applicability should be limited only to modifications of a forum-selection clause contained in an agreement.  Indeed, reading such limitation into Section 925 would undermine the law's intent to allow a California-based employee to litigate employment-related claims in a California forum.

Thus, the court concluded that Finch could void the forum-selection clause in the 2014 employment agreement because his right under Section 925 was triggered when Midwest modified the terms of the agreement with the 2017 and 2018 changes in compensation.

Significance of the Court's Decision

The court's decision makes clear that by enacting Section 925, the Legislature intended to create a statutory exception to the general rule that a modification to a contract does not affect other provisions in the contract that are not modified.  Employers who want to modify or extend an agreement containing a forum-selection clause that was entered into prior to January 1, 2017 should consult experienced employment counsel to avoid triggering the employee's right under Section 925 to void the forum-selection clause.

About the Author

Timothy B. Del Castillo

Tim practices employment law in California and represents both employees and employers in federal and state courts, administrative hearings, arbitrations, mediations, and in direct negotiations. Tim also offers advice and counsel and training to businesses to help them achieve compliance with California employment laws.

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