California Court Limits Reach of State Employment Laws for Out-Of-State Remote Workers

A recently published California Court of Appeal decision provides important guidance for California-based employers managing remote and multistate workforces. The decision confirms that California employment laws do not automatically apply to an employee who lives and works outside California, but they might apply depending on the circumstances and the particular law.

In Saberin v. Alation, Inc., the Court of Appeal addressed whether California's law restricting the use of arrest records applied to a remote employee who worked from Utah for an employer headquartered in California. The plaintiff asserted California statutory claims after his employment was terminated, relying on the employer's California headquarters, a California choice-of-law provision in the Proprietary Information and Inventions Assignment Agreement he signed, and the involvement of a human resources employee in California. The Court rejected those arguments and ruled that California law did not apply because the employee lived and worked outside California, the arrest at issue occurred outside California, and the termination decision was made by decision-makers who were outside California at the time the decision was made.

The Decision

The plaintiff in Saberin asserted claims under Government Code Section 12952 (the Fair Employment and Housing Act, or FEHA) and Labor Code Section 432.7, which restrict an employer's use of arrest records not resulting in conviction. He argued that California law should apply because his employer was headquartered in California, the intent of the legislature was to govern the conduct of California employers with respect to arrest records, the choice-of-law provision in the Proprietary Agreement cited California law, and a California-based HR professional had played a role in the termination process.

The Court of Appeal rejected all these arguments. As a threshold matter, the Court observed that a contractual choice-of-law provision selecting California law does not automatically extend California employment statutes to out-of-state employees, especially when that provision does not expressly carve out California's choice-of-law rules. Rather, a California choice-of-law clause incorporates all of California law, including California's presumption against extraterritorial application of its statutes. In other words, even where the parties have agreed that California law governs, a court must still determine whether the specific California statute at issue was intended to apply beyond California's borders.

Turning to the issue of extraterritoriality, the Court began with the settled presumption that California statutes apply only within California unless the Legislature has indicated otherwise. Relying on Ward v. United Airlines, the Court emphasized that there is no single, universal test for determining when California employment laws apply to interstate or remote-work relationships. Instead, courts must evaluate each statute separately, considering the statutory text, purpose, surrounding statutory scheme, and legislative history.

For Labor Code Section 432.7, the Court found no wording or statutory scheme showing a specific geographic scope. It then looked to the statute's purpose, which is to protect workers from the adverse employment impact of arrest records not resulting in conviction and to prevent employer misuse of criminal records. From that purpose, the Court concluded the Legislature intended to regulate both covered workers and employer conduct connected to California. Thus, Section 432.7 could apply to a non-California worker if the allegedly unlawful conduct had a sufficient connection to California.

The Court reached the same conclusion for FEHA. Although the statute and surrounding scheme did not specify geographic scope, its legislative findings reflected an intent to reduce employment barriers for Californians with arrest or conviction records and to regulate employers' inquiries into such records. The Court therefore concluded the statute was concerned with employer conduct in California even when the individual impacted by the conduct was outside the state.

Applying those principles, the Court determined that the plaintiff's claims lacked a sufficient California nexus. The Court focused on several facts in this regard: the plaintiff lived and worked remotely in Utah, the arrest occurred in Florida, the plaintiff's direct supervisor worked outside California, and the termination decision was made by individuals who were physically in Illinois at the time of the decision (although one of them was usually in California). The employer's California headquarters and the "input" of a California HR representative were not enough.

Based on all this, although the termination decision would have been unlawful under California law, the plaintiff's challenge was rejected because California law didn't apply. Whether the California Supreme Court will weigh in on the issue remains to be seen.

Practical Takeaways for California Employers

California-based employers with employees working in other states—either working from home or in other offices—should consider the following:

1. Where the employee works matters but may not be determinative.
   The fact that an employer is headquartered, incorporated, or does business in California does not automatically mean California employment laws apply to employees working elsewhere, but it does not automatically mean California law does not apply, either. In making decisions impacting an out-of-state employee, consideration should be given both to the law of the state where the employee works (which definitely will apply), and to California law (which might apply).
2. Where the decision is made matters.
   Attention should be paid to who is making the employment decision—be it hiring, discipline, promotion, or termination—and where the decision-maker is located both regularly and at the time the decision is made. If it is not essential to involve a California employee in the decision, perhaps that person should not be involved.
3. The specific California law at issue matters.
   In Ward, the California Supreme Court provided a framework for analyzing the extraterritorial application of California employment law and, specifically in that case, some of California's wage-and-hour laws. The Saberin Court has now provided guidance with respect to laws governing employers' use of arrest records. In situations where it matters—where the law of the state where the employee works would allow something that California law would prohibit—judicial guidance should be considered.
4. Choice-of-law provisions matter.
   Choice-of-law provisions are not determinative, but they do matter. Before including such a provision in an employment agreement, an arbitration agreement, or any other agreement an employee signs, consider which state's law you would prefer to be applied—either California law or the law where the employee works. Then, consider whether or not you want that state's choice of law principles to be excluded. The provision will not necessarily carry the day, but courts and arbitrators will consider it.

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Judith Droz Keyes and Jeff Bosley are partners in DWT's San Francisco office, and Emilio Gonzalez is a partner in the firm's Los Angeles office. For any questions or more insights, please reach out to the authors or another member of our employment services team and sign up for our alerts.