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 designated the place of arbitration as “either Chicago, Illinois or New York, New York.”  The arbitration clause also contained a delegation clause which delegated all questions of arbitrability to the arbitrator.

Dentons filed a motion to compel arbitration in New York and a motion to stay the action in the Los Angeles Superior Court under California Code of Civil Procedure Section 1281.4, which permits a court to stay an action where an application was made to a court “of competent jurisdiction” to order arbitration.  The Superior Court granted but later vacated an injunction staying the New York arbitration.  The Superior Court also stayed the California action, finding that it lacked jurisdiction because the parties delegated questions of arbitrability to the arbitrator.  Zhang sought a writ of mandate, which was denied. The California Supreme Court granted review and transferred the case back to the Court of Appeal, which in this latest opinion denied the petition and determined that the parties had delegated questions of arbitrability to the arbitrator.

Zhang argued that the New York court was not a court of competent jurisdiction that could compel arbitration because Labor Code Section 925 prohibits an employer from requiring a California “employee” to adjudicate a claim that arose in California.  The Court of Appeal rejected Zhang’s analysis, finding that the argument ignored the threshold issue:  whether the equity partner was an “employee” who could invoke Labor Code Section 925 in the first instance.

The Court held that Zhang’s status as an employee was an issue of arbitrability.  Thus, the parties’ clear and unmistakable delegation clause, which provided that issues of arbitrability would be decided by the arbitrator, mandated that the arbitrator, not the court, must determine whether Zhang was an employee such that he could invoke Labor Code Section 925.

Beyond the threshold question of the employee status of a law firm’s equity partner, this ruling may provide some practical guidance to practitioners in drafting future arbitration agreements with out-of-state forum and choice of law provisions.  An exception to Labor Code Section 925 permits employees who are represented by legal counsel to select another state’s law to govern the parties’ agreement.  Thus, in cases where an employee is represented by counsel and is covered by an arbitration agreement which has a delegation clause and an out-of-state choice of law provision, application of Labor Code Section 925 and choice of law may ultimately be determined by an arbitrator outside of California.

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Photo of Tony Oncidi Tony Oncidi

Anthony J. Oncidi is the co-chair of the Labor & Employment Law Department and heads the West Coast Labor & Employment group in the firm’s Los Angeles office.

Tony represents employers and management in all aspects of labor relations and employment law, including…

Anthony J. Oncidi is the co-chair of the Labor & Employment Law Department and heads the West Coast Labor & Employment group in the firm’s Los Angeles office.

Tony represents employers and management in all aspects of labor relations and employment law, including litigation and preventive counseling, wage and hour matters, including class actions, wrongful termination, employee discipline, Title VII and the California Fair Employment and Housing Act, executive employment contract disputes, sexual harassment training and investigations, workplace violence, drug testing and privacy issues, Sarbanes-Oxley claims and employee raiding and trade secret protection. A substantial portion of Tony’s practice involves the defense of employers in large class actions, employment discrimination, harassment and wrongful termination litigation in state and federal court as well as arbitration proceedings, including FINRA matters.

Tony is recognized as a leading lawyer by such highly respected publications and organizations as the Los Angeles Daily JournalThe Hollywood Reporter, and Chambers USA, which gives him the highest possible rating (“Band 1”) for Labor & Employment.  According to Chambers USA, clients say Tony is “brilliant at what he does… He is even keeled, has a high emotional IQ, is a great legal writer and orator, and never gives up.” Other clients report:  “Tony has an outstanding reputation” and he is “smart, cost effective and appropriately aggressive.” Tony is hailed as “outstanding,” particularly for his “ability to merge top-shelf lawyerly advice with pragmatic business acumen.” He is highly respected in the industry, with other commentators lauding him as a “phenomenal strategist” and “one of the top employment litigators in the country.”

“Tony is the author of the treatise titled Employment Discrimination Depositions (Juris Pub’g 2020; www.jurispub.com), co-author of Proskauer on Privacy (PLI 2020), and, since 1990, has been a regular columnist for the official publication of the Labor and Employment Law Section of the State Bar of California and the Los Angeles Daily Journal.

Tony has been a featured guest on Fox 11 News and CBS News in Los Angeles. He has been interviewed and quoted by leading national media outlets such as The National Law JournalBloomberg News, The New York Times, and Newsweek and Time magazines. Tony is a frequent speaker on employment law topics for large and small groups of employers and their counsel, including the Society for Human Resource Management (“SHRM”), PIHRA, the National CLE Conference, National Business Institute, the Employment Round Table of Southern California (Board Member), the Council on Education in Management, the Institute for Corporate Counsel, the State Bar of California, the California Continuing Education of the Bar Program and the Los Angeles and Beverly Hills Bar Associations. He has testified as an expert witness regarding wage and hour issues as well as the California Fair Employment and Housing Act and has served as a faculty member of the National Employment Law Institute. He has served as an arbitrator in an employment discrimination matter.

Tony is an appointed Hearing Examiner for the Los Angeles Police Commission Board of Rights and has served as an Adjunct Professor of Law and a guest lecturer at USC Law School and a guest lecturer at UCLA Law School.

Photo of Colleen Hart Colleen Hart

Colleen Hart is a partner in the Tax Department and a member of the Employee Benefits & Executive Compensation Group.

Colleen advises companies, executives and boards on complex executive compensation matters. She offers a multidisciplinary approach to compensation and benefits issues with a…

Colleen Hart is a partner in the Tax Department and a member of the Employee Benefits & Executive Compensation Group.

Colleen advises companies, executives and boards on complex executive compensation matters. She offers a multidisciplinary approach to compensation and benefits issues with a focus on tax planning, securities laws and corporate governance. Matters she handles include the negotiation, structuring and implementation of employment and change-in-control agreements and deferred compensation, equity and incentive compensation plans. She advises on golden parachute and deduction limitation rules, securities reporting, registration and disclosure requirements and California employment laws. In addition, Colleen has extensive experience advising clients on compensation and benefits issues arising in mergers and acquisitions, initial public offerings, bankruptcies and finance transactions.

Colleen is a contributing author of The 409A Handbook (BNA 2016) and lectures frequently on executive compensation matters. As a U.S. Navy veteran, Colleen devotes a substantial amount of time to organizations that provide legal and support services to U.S. veterans.

Photo of Katrine Magas Katrine Magas

Katrine Magas is a senior counsel in the Tax Department and a member of the Employee Benefits & Executive Compensation Group.

Katrine works with public and private companies on their executive compensation arrangements and employee benefit plans both on day-to-day matters and in…

Katrine Magas is a senior counsel in the Tax Department and a member of the Employee Benefits & Executive Compensation Group.

Katrine works with public and private companies on their executive compensation arrangements and employee benefit plans both on day-to-day matters and in connection with corporate transactions or financings. In her practice, Katrine provides expertise on complex tax issues arising under Internal Revenue Code Section 280G, 409A and 162(m). She also assists clients in designing, implementing and administering short- and long-term cash and equity incentive plans.

Katrine also represents individual executives related to employment, equity and separation agreements.

Before joining Proskauer, Katrine worked in Ernst & Young’s People Advisory Services, Reward group, focusing on executive compensation and global equity matters arising in financial services organizations. After graduating from law school, Katrine served as a judicial law clerk for Justice Nancy M. Saitta of the Supreme Court of Nevada.