Forum Selection Clauses in Employment Agreements

Synopsis: Make assumptions about forum selection at your own risk! An employment agreement that requires out-of-state dispute resolution may make the cost of enforcing your legal rights prohibitive.

You are a California employee of a corporate employer with a principal place of business in New Hampshire. Your employment agreement (or some policy statement you have signed) provides that any dispute you may have with that employer (including disputes concerning compensation, termination, discrimination, harassment – whatever) will be resolved in the courts of New Hampshire. Assume that the New Hampshire employer has a large Silicon Valley presence and loads of Silicon Valley employees, including you. You’ve never even been to New Hampshire. Now assume that you are terminated and the employer fails to pay you commissions or a bonus you contend is due; or that your termination is the product of racial or national origin or sex discrimination. You want to sue. Can you maintain your case in California – or must you find a lawyer 3,000 miles away and pursue the matter in New Hampshire?

Surely the law of California, “known” to be uniquely employee-friendly, will not require you to undergo the inconvenience, bear the additional expense (which, if your claim is not worth over $100,000, could be preclusive), and risk the possibility of a “home town” advantage for your adversary in the courts of far-away New Hampshire, right? Wrong.

California courts, both state and federal, routinely uphold forum selection clauses in employment cases. Theoretically, an aggrieved employee has the opportunity to prove that enforcement of a forum selection clause is “unreasonable and unjust,” or that the clause should be invalidated due to “fraud” or “over-reaching.” To succeed under the “unreasonable and unjust” standard, however, a plaintiff must convince the California court that the forum selection clause would “deprive him of his day in court.” You can forget about that argument if the forum selected is somewhere in the USA. As to “fraud” or “over-reaching,” hey, you had an opportunity to read the agreement (whether you or anyone in your position actually did or would), right? And, of course, if the forum selection clause was in a take-or-leave it agreement (a “contract of adhesion”) and you didn’t like it, you could have simply rejected the job opportunity and taken one of the other many jobs that are going begging for somebody just like you these days. That’s what the “freedom to contract” comes down to these days for employees.

Note that this is a different issue than whose law to apply (that is, regardless of what state your case is in, whose state’s substantive law applies to the dispute). Courts in every state will apply their notions of “conflict of laws” to determine which state’s law applies. Where you are a California resident, working in California for an employer maintaining a presence in California, most states would find that California’s law applies to the dispute. But will a New Hampshire court reach as reliable (or predictable) a result applying California law as would a California court? Maybe. Or maybe not. And the cost to the employee plaintiff of getting there will not be the same as the cost of getting there in a court in the same county as the one he or she lives and works in.

Forum selection clauses in employment contracts have big implications. For employees in a position to negotiate such clauses, serious consideration should be given to doing so.