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New California Law Affects IP-Related Contracts

Choice of law clauses
Must specify California
for state to enforce

A new California law will affect how intellectual property-related contracts are enforced.

Many companies have employees in California even though the companies are headquartered elsewhere or are incorporated in other states or countries.

Many such companies include clauses in their employee contracts stating that those agreements will be governed by the laws of other states or countries and that disputes will be heard in those other locations.

Federal courts will usually enforce forum-selection clauses, although California courts have often resisted these clauses when the impact on employees would be contrary to the state’s public policies.

Senate Bill 1241, which will become California Labor Code Section 925,

would prohibit an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would require the employee to adjudicate outside of California a claim arising in California or deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

Any contract that violates the law will be voidable by the employee.

The law applies to a contracts often signed by employees, including:

  • employment agreements (which may include confidentiality clauses that protect trade secrets and IP assignment clauses)
  • stand-alone confidentiality agreements (NDAs)
  • stand-alone IP assignments

The law exempts from its scope employees represented by legal counsel in contract negotiations. Thus, the law will mainly affect lower-level employees with standard, non-negotiated contracts.

The law applies to contracts entered into, modified, or extended on or after January 1, 2017.

Employers may want to revise their standard IP-related employment agreements and add a clause stating that foreign law and forum clauses won’t apply to California employees.

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