California Court Foils Attempt to Avoid Prohibition on Pre-Dispute Jury Waivers

May 4, 2017

While most states permit parties to waive the right to a jury trial by contract before a dispute arises, the California Supreme Court held over a decade ago that California is not one of them.  Recently, a California court reaffirmed the limited circumstances under which a jury waiver is enforceable under California law and proscribed the use of non-California choice-of-law clauses to circumvent those limits. 

In Rincon EV Realty LLC et al. v. CP III Rincon Towers, Inc. et al., the Court of Appeal held that the fundamental California public policy protecting the right to jury trials for California litigants, which can only be waived post-dispute by a few methods prescribed by statute, overrides and invalidates contractual choice-of-law provisions seeking to circumvent those limits.  The decision provides a fresh reminder that employers seeking to avoid California jury trials must strictly follow California law regarding jury waivers, or choose a different method to achieve the same or a similar result. 

In Rincon, the parties had executed certain contracts in New York relating to the financing and acquisition of an apartment complex located in San Francisco.  The contracts contained a New York choice-of-law provision stating that New York law would determine the enforceability of the jury waiver provisions in the parties’ contracts.  After the plaintiffs sued in California, the trial court struck their demand for a jury trial and then found for the defendants.

On review of the defense verdict, the Court of Appeal found that even though the relevant contracts were executed in New York, the plaintiffs resided in New York, the underlying loans were made in New York and the loan proceeds were disbursed in New York, the New York choice-of-law provisions in the contracts were unenforceable under California law as applied to the jury waiver provisions because the waiver violated fundamental California public policy. Specifically, the court held that California’s limited, statutorily prescribed methods for waiving a jury trial, which are set forth in California Code of Civil Procedure section 631(f), reflect a fundamental and inviolable California public policy in favor of jury trials for California litigants.  Because the litigants in Rincon did not utilize any of those statutory waiver mechanisms, the jury waiver was unenforceable. 

The court noted that “because the waiver provisions specified in section 631 are exclusive — and because all of them apply only after a lawsuit has been filed — a pre-dispute agreement specifying that any lawsuit between the contracting parties will be adjudicated in a court trial, rather than a jury trial, is unenforceable.”  The court also noted that beyond California’s interest in protecting the right to a jury trial, California has an important interest in “enforcing its policy that only the Legislature can determine the permissible methods for waiving the right to jury trial when parties submit their civil disputes to a court in this state for resolution.” 

This decision is significant for any employer doing business in California or facing litigation in California, particularly if the employer is relying on a choice-of-law provision stating that the laws of a state other than California will apply to any disputes.  Rincon suggests that, regardless of where an employment agreement is signed, where the employee works or what law the agreement designates, if the employee is a California resident or otherwise has the right to sue in California and does sue in California, any pre-dispute jury waiver contained in the agreement will be invalid.    

However, there are some ways for employers to potentially avoid the unwelcome prospect of a California state court jury trial through pre-dispute agreements:   

  • Implement arbitration agreements.  In Rincon, the court noted that under the California Arbitration Act, parties may agree to submit future disputes to arbitration.  Such agreements may include class and collective action waivers.  
  • Consider using a non-California-exclusive venue provision (also known as a forum selection clause) requiring that disputes be resolved in a state that enforces pre-dispute jury waivers.  In its opinion, the Rincon court noted that had the venue been changed to New York (which no party attempted to do), the California “jury trial right the parties enjoy in our courts would not travel” with them, meaning a New York court likely would have enforced the jury waiver.  When combined with a non-California choice-of-law provision, a pre-dispute jury waiver could be enforceable.    
  • Include in employment agreements a judicial reference provision, which is another method for avoiding a jury trial. This provision, authorized by California statute, provides for the appointment of a referee to “hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.” Typically, the appointed referee will, like many arbitrators, be a retired judge.

Implementing one of these steps is not a guarantee for avoiding a California jury trial, but in light of Rincon and its implications for out-of-state employers, careful consideration of these options is warranted. 

For further information or questions about this decision, please contact the authors, your McGuireWoods contact, or other members of the firm’s labor and employment department.