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Case Overview: Verdugo v. Alliantgroup, L.P.

Forum Selection Clauses in Employment Agreements May Not Diminish Unwaivable Rights Preserved by the California Labor Code

lowercase letter APlaintiff brought a wage and hour class action against her Texas employer and the trial court granted the employer’s motion to stay the suit based on a mandatory forum selection clause in the employment agreement designating Harris County, Texas, as the exclusive venue of dispute resolution.

The court of appeal reversed, acknowledging that while parties opposing enforcement of a choice-of-law clause normally bear the burden of showing enforcement would be unfair or unreasonable, when the underlying claims are based on unwaivable statutory rights (such as overtime, meal period, and rest period protections) the burden falls on the moving party to show that enforcement of a forum selection clause would not diminish the rights the Legislature has declared are unwaivable.

The appellate court specifically highlighted Labor Code sections 1194, subd. (a) (“Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage and overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation…”) and 219, subd. (a) (“…no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied”) and reinforced that California consistently has held that agreements attempting to contract around unwaivable Labor Code rights are illegal and unenforceable.[i]

The court of appeal noted that had the parties stipulated to have the Texas courts apply California law they could have preserved the statutory rights of Plaintiff and the putative class, but that absent any showing by the employer of how a Texas court would interpret the choice-of-law provision, enforcement of the forum selection clause would violate California’s clearly articulated public policy.

At oral argument, the employer urged the court of appeal to affirm the trial court’s ruling because the trial court had stayed, rather than dismissed, the action and therefore the trial court could still retain jurisdiction to lift the stay and allow the action to proceed in California if the Texas court refused to apply California law.

However, the appellate court rejected that argument, holding that under the forum non-conveniens doctrine a forum was unsuitable only if it lacked jurisdiction or its statute of limitations barred the action at issue.

Merely seeking to resume proceedings each time a foreign jurisdiction made an adverse ruling would controvert the purpose of the forum non-conveniens doctrine, which is designed to eliminate conflicts among jurisdictions, not make them more commonplace.

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[i] See Shachter v. Citigroup, Inc. (2009) 47 Cal.4th 610, 619 (“‘agreement[s] prospectively waiving an employee’s rights under sections 201 [and 202] to receive all his or her earned but deferred or unpaid wages … constitute … waivers which section 219 renders illegal and unenforceable’” (italics omitted)); Gentry v. Super. Ct. (2007) 42 Cal.4th 443, 455 & fn.3 (abrograted on other issue in Iskanian v. CLS Transp. Los Angeles (2014) 59 Cal.4th 348, 359) (“By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by [section 1194] are unwaivable”); Hoover v. Amer. Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1208 (“the rights accorded by sections 203, 1194, and 2802 may not be subject to negotiation or waiver”); and Iskanian, 59 Cal.4th at 383 (“employee’s right to bring a PAGA action is unwaivable”).