When an employee sues an employer, the forum selection clauses in her employment agreement can affect where the claims can be litigated—but only if those clauses are enforced.
For example, we previously discussed a court’s decision not to enforce an employee’s agreement to arbitrate because the employer failed to countersign her employment agreement.
Two recent decisions from the federal district courts further illustrate how boilerplate forum selection clauses can impact an employee’s litigation rights upon termination, and how employees can avoid those clauses.
First, in Pelletier v. Swarovski U.S. Holdings Ltd., the United States District Court in Rhode Island enforced a forum selection clause against Pelletier, a former vice president of Swarovski. Pelletier sued Swarovski in Rhode Island, claiming that he was terminated because he refused to engage in discriminatory conduct. In addition to challenging this claim, Swarovski argued that the mandatory forum selection clause in Pelletier’s employment agreement required him to bring the suit in New York. The Rhode Island court noted that forum selection clauses are presumed to be valid unless there are exceptional circumstances, and found nothing exceptional about Pelletier’s claims. Even though all of his claims were not contract-based, they each arose from his employment; therefore, the application of the forum selection clause in his employment agreement was not unreasonable. Thus, the court punted Pelletier’s case to the Northern District of New York.
However, a federal court in South Carolina recently refused to apply a similar forum selection clause. Ruff v. Strategic Contract Brands, Inc., involved a suit between a South Carolina-based regional manager and her Texas-headquartered employer. When Ruff was hired, the company sent her an offer letter outlining the terms and conditions of her employment. Approximately a month later, it sent her a formal employment agreement with additional terms and conditions, including provisions fixing Texas as the forum and selecting Texas law for any disputes under the agreement. The two had a rocky relationship, and Ruff accused the company of unilaterally attempting to decrease her commission rate. When Ruff was fired without notice, she sued for violations of the South Carolina Wage Act. The company argued that the forum selection and choice of law clauses controlled, such that the case belonged in Texas and had to be decided under Texas law.
The court did not agree. It refused to assume that the forum selection clause was presumptively enforceable, because it was not “made in an arms-length transaction by sophisticated business entities.” The court emphasized that the forum selection clause was not included in the initial offer letter to Ruff. Instead, it was “later thrown into a memorialization of the preexisting agreement made between the parties about [Ruff]’s employment.” When the company mailed Ruff the formal agreement a month after she started working, she faced the unfair choice of accepting the added terms or being fired. Thus, she was “at a clear disadvantage” relative to the company.
The court also rejected the company’s request to transfer the case to Texas as a matter of convenience. The court cited Ruff’s “poor financial situation” after her termination to find that litigating in Texas would be “gravely inconvenient” for her. Further, the Texas forum—and the application of Texas law—would “necessarily limit” Ruff’s claims, which were based on South Carolina law.
These cases demonstrate that courts are more likely to enforce forum selection provisions in an employment agreement when the agreement is the product of fair dealing between the parties. Both employers and employers should carefully read and consider the impact of these often-boilerplate provisions prior to signing. However, when the employer has unfairly imposed forum selection terms on an employee, especially after the employment relationship has already begun, courts stringently examine whether to enforce such terms. An employee who can argue a lack of fair dealing may not go gently into the employer’s forum of choice, regardless of what the contract says.