California Labor Code Section 925 prohibits employers from requiring employees who reside and work primarily in California, as a condition of employment, to agree to any provision that would require the employee to litigate outside California any claim arising in California, or that would deprive the employee of the benefit of California law with respect to any claim arising in California. Under Section 925, any such provision is voidable by the employee and if the employee exercises her right to void the provision, then any such claim shall be adjudicated in California under California law.

They did so by using employment agreements containing foreign choice-of-law provisions and foreign forum-selection provisions. We also reported that California had taken measures to correct this “loophole” by enacting California Labor Code section 925. Section 925, which went into effect on January 1, 2017, forbids employers from requiring employees to agree to foreign forum-selection and choice-of-law provisions as a condition of employment.

OnJanuary 1, 2017, California Labor Code Section 925 went into effect. This new provision limits an employer’s ability to require employees to enter agreements that include out-of-state choice of law and/or forum selection clauses.

ill survive the legal challenges it will encounter, all remain to be seen and likely will not be resolved for many months, if in 2023 at all.In the meantime, employers still need to contend with the ever-evolving world of non-compete law in the United States. The year 2022 saw an ongoing trend of legislatures passing laws intended to narrow the scope of non-competition agreements but courts—including in California, which may be a surprise for some to hear—continuing to enforce them. Meanwhile, other courts continued grappling with important issues—such as sale of business criteria and under what circumstances may a sale-of-business non-compete be unenforceable—that are already important now and will become even more so if the FTC’s proposed ban goes into effect. Other decisions dealt with evergreen issues such as contract interpretation and blue penciling. And still others considered the ever-increasing importance of California’s choice-of-law and choice-of-forum exception codified in California Labor Code Section 925(e). Below is a summary of some key non-compete highlights from 2022.Lawmakers Narrow Non-Competes.Colorado, the District of Columbia (D.C.), and Illinois are among the jurisdictions where new laws narrowing the reach of non‑competition agreements for employees went into effect in 2022. Among other limitations, Colorado law was amended to bar non-competes for employees earning less than $101,250 and to require a non-compete agreement be given to an employee before starting employment or at least 14 days before going into effect for current employees. The D.C. law bars non-competes for employees earning less than $150,000 annually and requires employees be given at least 14 days’ notice to review a non-compete before it goes into effect. The Illinois statute bars non-competes for employees earning less than $75,000 per year, imposes a 14-day notice requirement, and requires adequate consideration of at least two years of employment or financial benefits (which are not defined but presumabl

A California court has ruled that an arbitrator (not a judge) should decide on the applicability of California Labor Code Section 925 to a dispute between a law firm partner and his former law firm. Zhang v. Superior Court, 2022 WL 16832570 (Cal. Ct. App. 2022). This ruling potentially undermines the protections of Labor Code Section 925, which permits an employee to void a contractual provision that requires the employee to adjudicate a claim outside of California that arose in the state.Jinshu (“John”) Zhang was an equity partner at Dentons U.S. LLP. After Dentons terminated Zhang’s service over a dispute about his compensation related to a multi-million dollar contingency fee, the parties brought dueling actions in New York and California. Dentons initiated an arbitration in New York pursuant to the arbitration clause in the partnership agreement, while Zhang brought a wrongful termination action in Los Angeles Superior Court.The partnership agreement contained a broad arbitration clause that covered “all disputes related to the validity, breach, interpretation, or enforcement of [the partnership agreement]” and

Hence, from now on restrictive covenants in Wyoming will be judged on their specific terms/restrictions and, if the terms/restrictions do not comply with Wyoming law, the trial court will be required to render the terms/restrictions null and void.Yet, the most significant restrictive covenant case in the first quarter of 2022 came out of the Ninth Circuit Federal Court of Appeals. As companies with California employees know all too well, California Labor Code § 925 states that an employment agreement with a California employee is voidable if the agreement requires the employee to adjudicate disputes outside of California, or “deprives the employee of protections afforded by California law,” unless the employee is represented by counsel in negotiating the agreement.Section 925 conflicts with many employment agreements that contain choice of law and venue provisions.

This month, the Ninth Circuit’s decision in DePuy Synthes Sales v. Howmedica Osteonics held that a U.S. district court in California properly invalidated a foreign choice-of-law and forum selection provision under California Labor Code § 925, and denied a motion to transfer the case to a different venue. While this might seem at first blush like a technical issue of federalism and contractual interpretation, the decision indicates that federal courts in the Ninth Circuit will also apply California’s partial prohibition on the use of foreign forum-selection and choice-of-law clauses as to employees.

Judge Drozd reasoned that Scales has the financial means and opportunity to challenge the non-compete provisions of the employment agreement in the matter pending in Indiana state court – thus consigning Scales to the Indiana court for a determination of the enforceability of the non-compete. Judge Drozd also rejected Scales’ argument that enforcing the forum-selection clause would violate recently enacted California Labor Code § 925. The new law (which became effective this year) provides that an employer shall not require an employee who primarily resides and works in California to agree to a provision that would either: (1) require the employee to adjudicate a claim outside of California that arose in California; or (2) deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

ese provisions also potentially are covered by the statute.Current and Future AgreementsSecond, the scope of contracts covered by the new laws also is broad. Agreements containing impermissible covenants are “unenforceable regardless of where or when the contract was signed” (BPC § 16600.5(a)), and regardless of whether “the employment was maintained outside of California” (BPC § 16600.5(b)). SB 699 (i) prohibits firms from “enter[ing] into a contract with an employee or prospective employee that includes a provision that is void under this chapter” (BPC § 16600.5(c)), (ii) provides that “[a]ny contract that is void under this chapter is unenforceable regardless of where and when the contract was signed” (BPC § 16600.5(a)) and (iii) provides that “[a]n employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation” (BPC § 16600.5(d)).One open question is how the new statutes interact with California Labor Code Section 925 (“Section 925”), which permits a California-based employee to agree to the application of another state’s laws, and to the resolution of disputes in another state’s forums, in agreements on which the employee was represented by counsel. See Cal. Lab. Code § 925(e). Where applicable, Section 925 seems to authorize agreements to elect another state’s laws regarding restrictive covenants. And AB 1076 and SB 699 do not cross-reference Section 925, so arguably leave its application to restrictive covenants intact. At the same time, the broad language of AB 1076 and SB 699—and, in particular, SB 699’s application to contracts regardless of where and when executed and/or whether employment was maintained in California­—casts some doubt on that conclusion.Required Notice to Current and Former EmployeesThird, and most pressing from a timing perspective, AB 1076 requires firms to provide written notice to employees subject to unlawful provisions, and former employees who were subject to such pr

ss by a “substantial” (i.e., at least 25%) owner, member, or partner.Delaware Chancery Court Refuses to Enforce or Blue-Pencil Overbroad Deal Non‑Compete.The Delaware Chancery Court struck down a sale of business non-compete that barred the seller from competing not only with the business it sold, but also the buyer’s other businesses.The court also declined to blue-pencil the non-compete to an enforceable scope.California Courts Enforce Sale of Business Non-Compete Against Seller Tied to Termination of Employment (Not Closing Date).Ten years ago, a California appellate court refused to enforce a sale of business non-compete that defined the duration as the longer of X years from closing or Y years from the seller’s termination of employment.In 2022, however, two California state and federal court judges enforced sale of business non-competes where the seller was barred from competing with the buyer for Y years from the seller’s termination of employment.Courts Provide More Clarity on California Labor Code Section 925(e)’s Potential Application to Silicon Valley and Other California Non-Competes.California Labor Code Section 925 requires any agreements signed as a condition of employment in California to be governed by California law.However, Section 925 includes an exception, subsection (e), which on its face allows an employee who was represented by counsel to select another state’s law, which, in 47 of the remaining 49 states, would allow for greater enforceability. In 2018, the Delaware Chancery Court invoked Section925(e) to enforce a non-compete against a California executive on the basis of a Delaware choice of law provision, although the court reversed its decision after the executive presented evidence that he had not been represented by legal counsel.In 2021, the federal court for the Southern District of NewYork applied a Delaware choice of law provision over the objection of a California executive, where the court found the executive had been represented by legal counsel. While they did n