Why the Forum Where You Litigate a Non-Compete Dispute is So Important
If you thought the forum selection clause in a non-compete agreement isn't important, think again.
In fact, it may prove to be the single-most important clause in your agreement.
New York's courts are more favorably disposed towards an employer’s right to protect its legitimate business interests than many other jurisdictions (such as California). To that end, courts will almost always defer to the parties’ choice of forum for resolving disputes. Therefore, employers (who usually are on the drafting end of these agreements) should take extra care in selecting where they want these disputes to be litigated (or arbitrated, as the case may be).
To drive this point home, a cursory review of the four-part analysis that New York’s Federal courts have endorsed to determine whether to enforce a forum selection clause reveals just how hard it is to invalidate one of them.
The first three parts of the analysis are as follows:
“The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement. The second step requires us to classify the clause as mandatory or permissive, i.e., to decide whether the parties are required to bring any dispute to the designated forum or simply permitted to do so. Part three asks whether the claims and parties involved in the suit are subject to the forum selection clause.”
“If the forum clause was communicated to the resisting party, has mandatory force and covers the claims and parties involved in the dispute, it is presumptively enforceable” and the court should proceed to the fourth inquiry, which is “whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that ‘enforcement would be unreasonable or unjust, or that the clause was invalid for such reasons as fraud or overreaching.’ ” Phillips v. Audio Active Ltd., 494 F.3d 378, 383, 384 (2d Cir.2007) (quoting M/S Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972)).”
In other words, it is very hard to imagine a circumstance where a court will invalidate a forum selection clause. Therefore, considering that some jurisdictions have more favorable rules towards employers in these kinds of disputes, it stands to reason that the parties should be very careful when choosing the forum for resolving these disputes.