Sarah Tishler’s article about the challenges presented by choice-of-law and venue provisions in noncompete statutes was published by Law360 under the title, “Minn. Noncompete Ban May Add To Nat’l Venue Choice Tangle.”
The article, reprinted in full below, follows Minnesota’s outright ban on noncompete agreements and focuses on the choice-of-law and venue provision designed to protect Minnesota-based employees.
While the law does not apply retroactively to existing employee noncompetes, as of its effective date, Minnesota has joined just three other states — California, North Dakota and Oklahoma — in banning noncompetes entirely.
The outright ban on noncompetes has made headlines for good reason. But also contained in the statute is a significant choice-of-law and venue provision designed to be as protective as possible for Minnesota-based employees.
Subsection 3 of the statute provides that an employer “must not require an employee who primarily resides and works in Minnesota” to agree to a contract — not just noncompetes — that would
- require the employee to adjudicate out of Minnesota a claim arising in Minnesota; or
- deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.
Any contractual provision violating the foregoing is “voidable at any time by the employee,” and if such a provision is rendered void, the dispute “shall be adjudicated in Minnesota and Minnesota law shall govern the dispute.”
The subsection also explicitly provides that in addition to injunctive relief and any other remedies, “a court may award an employee who is enforcing rights under this section reasonable attorney fees.”
With this provision, Minnesota joins at least California, Colorado, Louisiana and Washington in providing explicit statutory choice-of-law and venue rules for state resident employees.
With the passage of this law, Minnesota will consider any noncompete agreement signed after July 1 to be voidable by the employee if the agreement requires the employee to adjudicate a dispute outside of Minnesota or deprives the employee of “the substantive protection of Minnesota law,” i.e., the new ban against noncompetes. The Minnesota law goes further than some other states, however, by providing in the statute itself reasonable attorney fees for any employee enforcing rights under that section.
he clear intent of the statute is to prevent employers from avoiding the new ban against noncompetes by inserting another state’s law and venue into contractual choice-of-law and venue provisions. Nonetheless, this type of statutory protection has received entirely mixed treatment in the courts when judges are confronted with the inevitable — and messy — question of whether state or federal law governs the validity, and enforcement, of forum selection clauses in diversity cases.
Of course, that fact pattern is precisely how the question presents itself in the first place.
To offer one example: An employee from Massachusetts, California or Minnesota signs an employment agreement with a company containing a forum selection clause choosing New Jersey. That employee quits and begins working for a competitor in direct violation of the employment agreement. Where will the parties be ordered to litigate?
In Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp. in March 2022, the U.S. Court of Appeals for the Ninth Circuit said that, in this exact scenario, state law decides the validity of a forum selection clause and choice-of-law and venue clause, and therefore the noncompete clause was void under California Labor Code, Section 925.
In contrast, in Howmedica Osteonics Corp. v. Howard in 2020, the U.S. District Court for the District of New Jersey had come to the polar opposite conclusion under the same forum selection clause in the same employment contract, rejecting arguments that Section 925 invalidated it.
The lack of uniformity persists in other jurisdictions that have considered the same issue. In the related areas of venue transfer and forum non conveniens, similar issues appear.
While some jurisdictions consider the existence of a state forum selection statute to be evidence of the state’s strong public policy, other jurisdictions merely shrug. In support of the former, in AG Resource Holdings LLC v. Terral, the Delaware Chancery Court held in 2021:
The Louisiana [forum selection] laws cited above are clear pronouncements by the Louisiana legislature regarding its public policy on matters of employment and competition. Under the circumstances, Louisiana’s interests must be respected and enforced.
On the other end of the spectrum, in Hilb Group of New England LLC v. LePage, the U.S. District Court for the Eastern District of Virginia in May 2022 wrote:
No Massachusetts court has held that the [Massachusetts Noncompetition Agreement Act, which mandates that all cases involving Massachusetts residents must take place in Massachusetts] manifests the state’s strong public policy. Thus, the enforcement of the Agreement’s forum selection clause would not go against a strong public policy of Massachusetts.
A clear path out of this jumble of precedent appears unlikely. In late 2022, the U.S. Supreme Court denied certiorari in the Howmedica case from the Ninth Circuit, leaving the circuits to go their own way.
As more states seek to ensure that their residents are indeed protected by the state laws that pass their legislatures, employers operating in multiple states and employers with remote work forces must proceed with caution and stay abreast of the rapid changes to state laws.
Otherwise, the law chosen in a given noncompete or employment agreement may not be the law eventually applied by a court — sometimes with dramatic results.
Sarah Tishler is a commercial litigator whose practice focuses on complex business disputes in state and federal courts, including intellectual property, breach of contract, and fraud claims.
eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.
The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.
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- Stay tuned for what New York Gov. Kathy Hochul will do with Bill No. S3100A, the bill passed by the New York State Senate and Assembly that would ban all noncompetes.
- See, e.g., Massachusetts Noncompetition Agreement Act, M.G.L. 149 § 24L(e)-(f):
- No choice of law provision that would have the effect of avoiding the requirements of this section will be enforceable if the employee is, and has been for at least 30 days immediately preceding his or her cessation of employment, a resident of or employed in Massachusetts at the time of his or her termination of employment.
- All civil actions relating to employee noncompetition agreements subject to this section shall be brought in the county where the employee resides or, if mutually agreed upon by the employer and employee, in Suffolk county; provided that, in any such action brought in Suffolk county, the superior court or the business litigation session of the superior court shall have exclusive jurisdiction.
- Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956 (9th Cir. 2022).
- Howmedica Osteonics Corp. v. Howard, 2020 WL 1102494, at *3 (D.N.J. Jan. 17, 2020), report and recommendation adopted, 2020 WL 1082601, at *1 (D.N.J. Mar. 5, 2020).
- See, e.g., Terral v. AG Res. Holdings LLC, 54,156 (La. App. 2 Cir. 3/9/22), 335 So. 3d 1009, 1016-17 (invalidating Delaware choice-of-law provision in favor of Louisiana statute); Zeppelin Systems USA Inc. v. Pyrolyx USA Indiana LLC, 2020 WL 1082774, at *4 (S.D.N.Y. Mar. 5, 2020) (upholding validity of forum-selection clause under federal law, despite an Indiana law that would render the clause invalid); NuMSP LLC v. St. Etienne, 462 F. Supp. 3d 330, 345 (S.D.N.Y. May 22, 2020) (“in determining whether a forum selection provision is invalid, the Court focuses on the public policy of the forum state, not some other state”).
- AG Resource Holdings LLC v. Terral, No. CV 2020-0850-JRS, 2021 WL 486831, at *5 (Del. Ch. Feb. 10, 2021).
- Hilb Group of New England LLC v. LePage, No. 3:21-cv-757, 2022 WL 1538583, at *4 (E.D. Va. May 16, 2022).