75 Cal.App.5th 844
Cal. Ct. App.2022Background
- LGCY Power, LLC (Utah-based) required sales reps to sign employment agreements with Utah choice-of-law and forum-selection clauses. Michael Sewell, a California resident, worked for LGCY and alleges he was misclassified and unpaid commissions after a post-2015 promotion.
- LGCY sued Sewell and six others in Utah alleging breaches of those agreements after several employees formed a competing company; four co-defendants filed a cross-complaint in Utah asserting wage/contract claims (Sewell did not join that cross-complaint).
- Sewell filed a separate action in Fresno County asserting the same contract and California wage claims; LGCY demurred, arguing Sewell’s claims were barred as compulsory cross-complaints under California and Utah law (Code Civ. Proc. §426.30; Utah R. 13(a)).
- The Fresno superior court overruled the demurrer, concluding California Labor Code §925 (prohibiting forcing California-resident employees to adjudicate California claims outside California or waive California substantive protections) provides an exception to the compulsory cross-complaint rule and that Sewell adequately alleged post-2017 oral modifications bringing him within §925.
- LGCY petitioned for writ of mandate; the Court of Appeal (Fifth Dist.) denied the petition, holding §925 can except a California-based employee from §426.30 and that the Full Faith and Credit Clause did not compel California courts to apply Utah’s compulsory cross-complaint statute while the Utah action remained pending.
Issues
| Issue | Plaintiff's Argument (LGCY) | Defendant's Argument (Sewell) | Held |
|---|---|---|---|
| Whether Cal. Lab. Code §925 creates an exception to California's compulsory cross-complaint rule (Code Civ. Proc. §426.30) | §925 does not expressly override §426.30; §925 makes clauses merely "voidable," so compulsory cross-complaint rules still bar claims not pleaded in the pending Utah action | §925 forbids forcing CA-resident employees to adjudicate CA claims out-of-state and requires adjudication in California if voided, thus providing an exception to §426.30 | Held: §925 is a statutory exception to §426.30 where its criteria are met; court may adjudicate in California and apply CA law. |
| Whether the Full Faith and Credit Clause required the California court to apply Utah's compulsory cross-complaint statute (so Sewell's CA suit would be barred while Utah case pending) | Full Faith and Credit requires California to give effect to Utah's compulsory-counterclaim rule and thus bar Sewell's claims because the Utah action was first-filed | Section 925 and California policy allow Sewell to litigate in California; full faith and credit gives statutes less deference than judgments and does not force California to apply another state's statutes contrary to its policies while no final judgment exists | Held: Clause did not compel applying Utah's statute pre-judgment; full faith and credit is less exacting for laws than for final judgments, so CA need not apply Utah's cross-complaint rule while Utah action is pending. |
| Whether Sewell met §925 threshold as an "employee" (not forfeited) | LGCY argued Sewell was an independent contractor and thus outside §925 | Sewell alleged status as employee; LGCY failed to preserve/brief the classification issue properly in writ papers | Held: LGCY forfeited the worker-classification argument; court did not decide classification on merits. |
| Whether the employment agreement was "entered into, modified, or extended on or after Jan 1, 2017" so §925 applies (oral modification issue) | Agreement was executed in 2015 and unmodified because written contract required written amendments; thus §925 inapplicable | Sewell alleged a post-2017 promotion, changed duties and pay—an executed oral modification under Civ. Code §1698(b)—bringing the contract within §925 | Held: On demurrer, allegations of executed oral modifications after 1/1/2017 were sufficient to invoke §925; the written no-oral-modification clause does not bar an executed oral modification. |
Key Cases Cited
- Franchise Tax Bd. of California v. Hyatt, 578 U.S. 171 (U.S. 2016) (distinguishes credit owed to statutes vs. judgments under Full Faith and Credit)
- Hyatt v. Franchise Tax Bd., 538 U.S. 488 (U.S. 2003) (Full Faith and Credit precedent on judgments vs. laws)
- Baker by Thomas v. General Motors Corp., 522 U.S. 222 (U.S. 1998) (differentiates credit owed to laws and judgments)
- Sun Oil Co. v. Wortman, 486 U.S. 717 (U.S. 1988) (Full Faith and Credit does not force a state to substitute another state's statute for its own)
- R.S. v. PacifiCare Life & Health Ins. Co., 194 Cal.App.4th 192 (Cal. Ct. App. 2011) (preclusive effect of a sister-state judgment requires applying that state's compulsory-counterclaim law when assessing the judgment's effect)
- Midwest Motor Supply Co. v. Superior Court, 56 Cal.App.5th 702 (Cal. Ct. App. 2020) (post-2017 modifications can bring an employment contract within §925's scope)
- Frog Creek Partners, LLC v. Vance Brown, Inc., 206 Cal.App.4th 515 (Cal. Ct. App. 2012) (explains breadth of compulsory cross-complaint rule for contract-based claims)
- Align Technology, Inc. v. Tran, 179 Cal.App.4th 949 (Cal. Ct. App. 2009) (employer claims against former employee barred as compulsory counterclaims when based on same employment relationship)