by Wayne Moskowitz
The Texas Supreme Court has issued a decision that will help employers based outside of Texas, including Minnesota employers, enforce non-compete covenants signed by their Texas employees. In In re AutoNation, Inc., No. 05-0311 (June 29, 2007), the Texas court for the first time enforced a "forum selection" clause in a non-compete agreement. The forum selection clause required that lawsuits be brought in the employer's home state of Florida. The court accordingly dismissed the employee's Texas lawsuit in which he sought to have his non-compete covenant declared invalid under Texas law. The decision's significance may extend beyond Texas employees, because its reasoning may persuade courts in other states to uphold forum selection clauses in non-compete agreements.
Requiring a non-compete dispute to be litigated in the employer's home state may ultimately determine who wins. Because different states apply different tests for enforcing non-compete covenants, employment agreements frequently provide that the law of the employer's home state will apply. A court in the employer's home state may be more likely to respect such a choice-of-law clause, while a court in the employee's home state may be more likely to disregard it and apply its own state's law. For example, Maslon attorneys recently enforced a non-compete covenant against a Texas employee by bringing suit in the employer's home state of Pennsylvania, where the court adhered to the agreement's choice of Pennsylvania law. A Texas court would have applied Texas law, under which it is more difficult to enforce non-compete covenants.
Employers that use non-compete agreements should consider including forum selection clauses, as well as choice-of-law provisions. Such provisions may be useful even if all employees reside in the employer's home state, because a departing employee may take competitive employment in a new state. Forum selection clauses are not a panacea-they are not always enforced, and they can even be counter-productive, e.g., if the employer's home state is hostile to non-compete covenants. But employers based in states like Minnesota, where courts will generally enforce reasonably drawn non-compete covenants to protect customer relationships and confidential information, may greatly increase the odds of success if their agreements contain forum selection and choice-of-law clauses.
Please contact the Maslon Competitive Practices/Unfair Competition Practice Group if you would like additional information.
|
