Facts Matter in Non-Compete Agreements – Even as to Choice of Law and Venue
In a decision with important consequences for employers with national non-compete programs, a Massachusetts Superior Court Judge recently invalidated the Massachusetts choice-of-law and forum-selection provisions of a non-compete agreement between a Massachusetts company and its former, California employee. See Oxford Global Resources, LLC v. Hernandez, No. 1684CV03911-BLS2 (Mass. Super. Ct. June 9, 2017). The court determined that the agreement was adhesory and designed to circumvent California public policy. It also concluded that California has the most significant relationship to the dispute. For these reasons, the Court ruled that California courts applying California law—where the non-compete provision is unenforceable—should hear the dispute.
Oxford Global Resources, LLC sued its former employee for breaching a non-compete agreement by soliciting Oxford customers. The former employee, Jeremy Hernandez, worked and lived exclusively in California. He moved to dismiss.
First, applying Massachusetts law, the superior court concluded that the agreement’s choice-of-law provision was adhesory and thus unenforceable. The court noted that Oxford hired Hernandez to an entry-level position in reliance upon the provision; that the agreement’s language declaring it the product of fair negotiation could not change the fact that Hernandez had no actual bargaining power; and that the provision aimed to circumvent California public policy, which prohibits non-compete agreements. In the absence of the Massachusetts choice-of-law provision, the court concluded that California law applied to the entire contract because all of the relevant acts occurred there.
Then, the court deemed the agreement’s forum-selection clause similarly unenforceable holding that “where a forum selection clause is combined with a choice of law provision that would bar a claim or defense in violation of California public policy, the forum selection provision is also ‘unenforceable as against public policy.’”
Finally, having negated the venue provision, the court dismissed the case under the doctrine of forum non conveniens. It determined that California courts could adequately address the dispute, and that the private interests (all of Hernandez’s relevant actions occurred in California) and public interests (all of the actions and harms were felt in and affect California) favored resolution in California.
The superior court’s decision is a cautionary tale regarding non-compete agreements. Facts matter. When crafting employment agreements, employers should consider all relevant factors, such as the prospective employee’s sophistication, negotiating position, value, experience, and present and future location. Otherwise, even choice-of-law, forum-selection, and capacity language designed to protect business interests may fall.
Arent Fox's Labor & Employment group will continue to monitor developments in this area. If you have any questions, please contact Linda Jackson or Jon Gryskiewicz in our Washington, DC office, Paul Lynd in our Los Angeles, CA office, or the Arent Fox professional who usually handles your matters.