Forum Selection Clauses Head To The Supreme Court
Essential to the drafting of any robust employment agreement, and indeed, nearly all modern contracts, is a forum selection clause that governs that agreement. Forum selection clauses are thought to provide the parties to a contract with certainty about where any disputes arising from that contract will be heard; they are presumed to avoid congesting the courts with disputes over venue, so the parties may head to the merits of a case. In general, unless there are obvious defects with a contract’s validity, courts will honor the agreement on venue that the parties reached and memorialized in the contract.
ut what happens when a state passes a law that expressly bans contractual forum selection clauses that would remove a case from that state’s jurisdiction? This type of law is becoming increasingly common among states that view non-compete clauses and other restrictive covenants with suspicion (or outright hostility).
For example, Massachusetts’ Noncompetition Agreement Act provides that “[a]ll 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 . . .” Mass. General Laws c.149 § 24L(f).
California is another example. California Labor Code Section 925 provides: “An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would …:[¶] (1) Require the employee to adjudicate outside of California a claim arising in California.” (§ 925, subd. (a).) “Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.” (§ 925, subd. (b).)
A classic Erie law school exam hypothetical presents itself: in the event that an employee is a California resident, and signs an employment agreement with a company that contains a forum selection clause choosing New Jersey, where will the parties be ordered to litigate if the company sues the (now former) employee when he quits and starts working for a competitor, in direct violation of his employment agreement?
his is the exact scenario before the Supreme Court in Howmedica Osteonics Corp. v. DePuy Synthes Sales, Inc., on certiorari from an opinion of the Ninth Circuit Court of Appeals. 28 F.4th 956 (9th Cir. 2022). In that case, Jonathan Waber was a sales representative for Howmedica, and signed a standard employment agreement with the company, containing a New Jersey forum selection and choice of law provision, as well as non-compete and non-solicitation clauses that prevented former employees from competing, soliciting, and servicing for one year after their departure. Mr. Waber ultimately resigned from Howmedica, and accepted a position with DePuy Synthes Sales. When Howmedica attempted to enforce the restrictive covenants against Mr. Waber, his attorney responded by asserting that the forum selection and choice of law clauses were void under California Labor Code § 925. Communication between the parties broke down, and litigation ensued.
After Mr. Waber filed a declaratory judgment action in the Central District of California, asking the court to declare those provisions void, the petitioner moved to transfer venue to the District of New Jersey under 28 U.S.C. § 1404(a). The district court denied the motion, holding that state, not federal, law governed the validity of a forum selection clause in a contract. Deeming the forum selection clause invalid, and therefore unenforceable, the court assigned no weight to the forum selection clause when evaluating the transfer factors. The Ninth Circuit affirmed, holding that § 1404(a) and Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988) “do not broadly preempt all state laws controlling how parties may agree to or void a forum-selection clause.”
In so doing, the Ninth Circuit joined the Seventh Circuit in the minority view that state law, not federal judge-made law, controls the validity of a forum selection clause in a case sitting in diversity in federal court. The Second, Third, Fourth, Fifth, Sixth, Tenth, Eleventh, and D.C. Circuits have all gone the other way—they hold that the issue is procedural, rather than substantive, and that federal law as pronounced in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) is properly applied to determine the validity, as well as the enforceability, of forum selection clauses.
The circuit split on this important issue is clear, as are the implications for its resolution. To take one example of the disparate outcomes in different jurisdictions, analyzing the very same forum selection clause, in the very same employment contract at issue, the District of New Jersey upheld the forum selection clause, and rejected arguments that California Labor Code § 925 invalidated it. 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). Same facts—opposite outcome.
The Supreme Court has yet to announce whether it will grant certiorari for this case. While Howmedica may not spark the same headline news as other cases before the Supreme Court this term, it is definitely one to watch for practitioners in the labor and employment space.
Sarah Tishler is the author of this article. Sarah 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.
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