In Medtronic, Inc. v. Amanda Ernst and Nevro Corporation, a state court forum selection clause in an employment agreement was not enforced, and remand to state court was denied. Because the former employer served the new employer, and the new employer removed the case before the former employee bound by the forum selection clause was served, the court ruled that the employee’s consent to removal was unnecessary and the forum selection clause was not triggered. Further, the court determined that the new employer was not a closely related party that could be bound by the employee’s contractual agreement to the forum selection clause. This case has four important lessons for employers seeking to enforce forum selection clauses in employment agreements.
For many companies, the immediate impulse upon learning that a former employee has violated an employment agreement or restrictive covenant is to sue the former employee and the new employer. Sometimes the new employer is a necessary party to stop theft and anti-competitive tactics. Other times naming the new employer is simply a matter of principle (or reflex). As the Medtronic order demonstrates, suing a non-party to the employment agreement, such as a former employee’s new employer, can defeat enforcement of a forum selection clause and should be considered anew for each case.
- Joint Representation
For former employees and new employers defending against lawsuits brought by former employers, sharing counsel can be efficient and cost-effective. As the Medtronic order demonstrates, although joint representation is just one part of the closely related party analysis, it should be considered when analyzing the enforceability of a forum selection clause.
Especially in cases where the former employee and new employer are outside of the contractually selected forum, the same process server may not be engaged to serve the former employee and the new employer. As the Medtronic order illustrates, it is important to coordinate service on the former employee and the new employer in cases where there is a chance of removal.
- Choice of Law
Because of variations in state employment laws, there may be times when a company could improve its chances of enforcing one clause in a contract (e.g., forum selection and choice of law) by waiving its rights under the other clause. As this blog has pointed out before, getting too greedy can be costly – especially when it comes to enforcing restrictive covenants. Accordingly, companies should make decisions about whether to enforce a forum selection clause on a case-by-case basis. Further, a company should consult employment counsel when hiring in a new state to analyze whether to modify its existing forum selection and choice of law clauses.