CHOICE OF GOVERNING LAW AND FORUM SELECTION PROVISIONS IN EMPLOYMENT CONTRACTS

Most employment contracts will have provisions that dictate that A) the contract will be governed by the laws of a particular state (“choice of law”) and B) the litigation, if any, must take place in a certain state, e.g., California (“forum selection”).  These provisions are often overlooked entirely or given short shrift in the employment contract review process.  That is a big mistake.

Choice of Law (Governing Law)

Generally, the basic  limitations on enforcing a choice of law provision are that there be some relationship between the transaction that is the subject of the agreement and the selected jurisdiction  or  that there is some other reasonable basis for the choice of law of the selected jurisdiction.

Forum Selection

Forum selection dictates the location of the court that shall adjudicate the parties’ disputes arising from a contract.  Forum selection provisions are prima facie valid. As parties are free to contract, again, generally, the enforceability of a forum selection provision becomes a matter of its reasonableness and it not being against public policy.

Employer Drives Choice of Law and Forum Selection

An employer will usually designate the state in which it is headquartered for both choice of law and the location where a lawsuit concerning the contract may be physically brought.  For many employers these are reflexive choices because they believe the forum for litigation in their headquartered state is more convenient for the employer.

The lawyer for the employer is usually admitted in the state in which the employer is headquartered and, therefore, the lawyer is more familiar and comfortable with contract, labor and other laws of that state.  However, an examination of the “home state” laws may reveal that some or all of these laws may actually be more favorable to the employee. For example, if we look at non-compete provisions that are found in many employment contracts, some states’ courts are more liberal in enforcing them. Some other state courts have a stricter standard in upholding the enforceability of non-competes because these courts frown on restraints preventing an individual from being able to earn a livelihood.

Friendly Forum

Some states are friendlier for individual plaintiffs and less friendly toward large corporations involved in litigation against individuals.  Even certain counties within a particular state may be more or less friendly toward individual plaintiffs or defendants; therefore, a corporate party may even seek to designate a specific county.   Employees are more likely to negotiate for a selection of forum closest to where they live as litigating a lawsuit 1,000 miles away may be cost prohibitive.

So the selection of forum can be a very important decision for either the employer or the employee.

2 responses

  1. Thank you for your feedback. If you are a LinkedIn member, I recommend joining the Non-Compete Lawyers Group even if you are not a lawyer as it has great information and opinions concerning non-compete issues. For more general executive development materials, I highly recommend HBR Blog Network, which is a part of the Harvard Business Review.

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