California's anti-employment bill

One would think that with labor (and other) markets in the tank, our lawmakers would be working on ways to bolster them rather than tear them down. And that states would be trying to compete for business rather than driving it away.

Choice of law and choice of forum provisions are powerfully pro-market, as discussed at length in my and Erin O’Hara’s new book, The Law Market (first chapter and summary here). Among other things, the market for law backed by these contract provisions provides predictability, deters wasteful forum-shopping, coordinates law in a world where all contracts cross geographic borders, and disciplines interest group attempts to pass laws that impose costs on society.

To be sure, it is also the case that choice of law and forum can undermine efficient state regulation. But state lawmakers need to take a nuanced approach to invalidating these clauses. And that's not just because enforcing the contracts can serve public policy. Contracting parties always have the option of avoiding the state completely, hurting its residents. Moreover, the firms whose contracts are thwarted can turn to Congress for protection and add to the increasing marginalization of state law.

Unmindful of all that, a stupid bill in the California legislature would invalidate all choice of law and forum selection clauses in contracts for employment in California. Here’s the bill via California Civil Justice Blog and PoL.

“Nuance” is something this bill avoids assiduously. Many states void some choice of law and forum clauses that would undercut some kinds of mandatory provisions. This bill applies to any employment contract. Even to the ceo of a Fortune 500 company? It protects not only mandatory state laws but also default rules.  This prevents interstate firms from getting standardized interpretation of their contracts even where this would not interfere with state policy.

Not only that, the bill includes an escape clause that is sure to provide ample grist for litigation:

(d) Nothing in this section affects the right of an employee to voluntarily agree to a choice of law or forum selection provision that is not required as a condition of employment and that is the subject of independent consideration.

Does this mean that the job can have two pay scales – minimum wage without the clause and 100,000 a year with? Or what?

O’Hara and I do recommend in our book that if states are going to outlaw these clauses, they do so by explicit statute rather than by court decision. That gives competing interest groups a chance to fight it out in advance (this bill has already gone down once), and affected parties an opportunity to avoid states that impose these restrictions on contracting. 

Is that what the legislator who introduced this monstrosity, Felipe Fuentes, has in mind – less employment in California to go with an already tailspinning economy and 42 billion dollar deficit?

Comments

[Matt Bodie]

The "independent consideration" requirement of subsection (d) is so manipulable that it will be either meaningless or arbitrary. The "not required" language, however, may allow employees to insist on refusing the clause without fear of losing their jobs. (I'm assuming there will be a cause of action, either in the statute or implied by courts, for wrongful discharge if someone if fired or not hired for failing to agree to a choice of law term.) I'm curious as to whether employers would actually avoid California based on this bill. There's already a lot of regulation there; this might not be the straw that breaks the camel's back. (If the camel's in California, it has a pretty sturdy back.)

[Larry Ribstein]

Yes, it seems that even if the employee can refuse the clause, it's still not valid unless the clause also hinges on independent consideration. But can "not required" be undercut by a wink or a nod? When will a court deem the job to have been withdrawn because the employee objected to the clause? So (d) is incoherent. But if you take it out, the statute would clearly invalidate even a provision explicitly agreed to by employer and employee irrespective of bargaining position or other social consequences. I think that goes beyond even current California law. In general, these problems point up the inherent difficulties of regulating contracts, particularly against the backdrop of jurisdictional choice.