Why Choice of Forum Clauses Are Important

Choice of forum clauses are provisions in contracts that control where a legal suit is brought should there be a dispute between the parties to the contract.  Employers and employees enter into agreements (such as general employment agreements, sales/incentive agreements, non-competition agreements, and confidentiality agreements) that often contain choice of forum clauses.  Typically these clauses pick a state in which the suit is to be brought, such as state and federal courts in New Hampshire, but can also dictate a particular county within a state.  In addition, there can be a provision in a contract that contains a choice of law provision stating the state law that should be applied to the dispute.  While the choice of forum clause and choice of law clause often contain the same state, they can be different.

Many employees and employers draft these clauses without much thought or do not attempt to negotiate them when entering into a contract.  These clauses are important, however, and both employer and employees should think about what impact they have prior to a dispute arising.  Recently a New Hampshire employee, Mr. Fraize, found out the hard way that the choice of forum provision provided obstacles to his breach of contract, wage and wrongful discharge claims.   The United States District Court for the District of New Hampshire issued a decision, Fraize v. Fair Isaac Corporation, 2017 DNH 0005 (January 4, 2018) holding that Mr. Fraize could not sue his employer in New Hampshire, but had to bring the suit in Minnesota.  Mr. Fraize had entered into a Sales Incentive Plan Participation Agreement with his employer relating to his commissions. The Agreement had a choice of forum clause stating that any action relating to this Plan must be commenced exclusively in the state and federal court located in Hennepin County, Minnesota.  The Court held that the forum clause was enforceable and covered both his wage act claim and his wrongful discharge claims.  Mr. Fraize unsuccessfully argued that it would be “seriously inconvenient for him to travel to Minnesota.  In addition, the Court found that a Minnesota court could apply New Hampshire law to the wage act and wrongful discharge claims. The Court did note that statutory claims that require a party to assert a claim in a particular venue could negate a forum selection clause.

Generally a forum selection clause will be enforced unless it is the result of fraud or overreaching, if enforcement would undermine a strong public policy of the forum where suit is filed, if enforcement would be “unreasonable and unjust” or it would be so seriously inconvenient to deprive a party of his/her day in court.

Thus, when drafting or negotiating an employment contract, both the employer and the employee should give thought to the forum selection clause and the choice of law provision.  There should be some connection to the forum state.  Both parties should be certain that the forum state is convenient and that the choice of law is one that they could live with in applying to their claims as some states are known to have much more favorable laws to employers or employees.

 

About the Author: Jennifer Eber

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