Recent Ruling Reinforces Importance of Controlling State Law in Noncompete Agreements
Author: Melissa A. Silver, XpertHR Legal Editor
When drafting noncompete agreements employers should include a clause identifying the state where all disputes or controversies regarding the employment agreement will take place, otherwise known as a forum selection clause. As shown in the recent case of Hartstein v. Rembrandt IP Solutions, LLC, 2012 U.S. Dist. LEXIS 105984 (N.D. Ca. July 30, 2012), such clauses can work to an employer's advantage.
In Hartstein, the plaintiff, a California resident, and Rembrandt entered into an employment agreement that contained a noncompete clause. When the plaintiff resigned from Rembrandt and began working for its competitor, he requested that the court invalidate the noncompete clause on the grounds that it violated California law.
However, the employment agreement contained a mandatory forum selection clause which provides for exclusive jurisdiction in Pennsylvania (Rembrandt's principal place of business) for all actions and proceedings relating in any way to the agreement and/or the plaintiff's relationship with Rembrandt.
Despite the plaintiff's arguments that the forum selection was unreasonable because California has a strong public policy against covenants not to compete and that he would succeed there as opposed to Pennsylvania which generally enforces noncompetes, the court found that the forum selection clause was valid and enforceable.
While the court ruled in favor of the employer in the above case, this is a reminder to employers to include a forum selection clause in their noncompete agreements. When deciding which state's law will control, employers should consider the laws for each state in which they conduct business because no two states are alike. Some states' laws are more favorable to employers than others. As seen in Hartstein, while some states may have a strong public policy against noncompete agreements, other states may enforce them. Therefore, forum selection clauses can be a powerful tool to protect an employer's competitive edge in its industry.
Additional Resources
Recruiting and Hiring > Terms of Employment > Written Employment Contracts
HR Strategy, Management and the Law > Multistate Employer > Postemployment Restrictions