SCOTUS Ruling on Forum-Selection Clauses Good News for Employers

Many employment agreements contain forum-selection clauses naming the state or the court in which any disputes must be litigated, and what state’s law will govern. Employers often name Delaware state courts as the exclusive forum, due to the high quality of Delaware courts and large number of corporations and other entities created in Delaware, and name Delaware law as the governing law.

Some courts have refused to enforce forum-selection clauses on the ground that another state would be more convenient than the named forum, based on the location of witnesses or documents. In a unanimous decision, the U.S. Supreme Court has strongly endorsed enforcement of these clauses. While the facts did not involve an employment dispute, the Court’s reasoning will apply with equal force to such disputes.

The facts involved a construction contract between a firm in Texas and one in Virginia, for work to be performed in Texas. The contract contained a clause naming Virginia as the appropriate forum. When the Texas firm filed a lawsuit in Texas, the Fifth Circuit refused to enforce the forum-selection clause, explaining that the convenience of the parties justified keeping the case in Texas notwithstanding the clause. The Supreme Court reversed. The Court observed that a forum-selection clause must be

given controlling weight in all but the most exceptional cases. . . . When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a [motion to transfer] be denied.

Atl. Marine Constr. Co., Inc. v. U.S. Dist. Ct., No. 12-929 (U.S. Dec. 3, 2013).

Significantly, the Court pointed out that whether the forum-selection clause names another federal court or a state court, the same standard applies, that is, the existence of the clause is to be given great weight. Delaware has a specific statute on choice of law that should be invoked in any forum-selection clause. That statute, 6 Del. C. ยง 2709, applies to contracts involving $100,000 or more and sets out the language to be used in a forum-selection clause in order to establish the requisite relationship with Delaware. Especially in agreements with senior-level employees, employers would be well advised to consider the use of forum-selection clauses.

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