On December 3, 2013, the United States Supreme Court decided Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, No. 12-929, holding that in federal courts a forum-selection clause in a contract may be enforced by a motion to transfer venue under 28 U.S.C. § 1404(a), but not by a motion to dismiss under 28 U.S.C. § 1406 or Federal Rule of Civil Procedure 12(b)(3). This unanimous decision is significant because it makes forum-selection clauses in contracts, including non-competition agreements and other employment-related agreements, enforceable in "all but the most unusual cases." The Supreme Court held that, when there is a valid forum-selection clause:
- The choice by the party defying the forum-selection clause of where to sue should receive "no weight."
- Arguments about the parties' convenience should not be considered.
- The choice-of-law rules of the venue selected by the party defying the forum-selection clause will not follow the case to the venue selected by the forum-selection clause; instead, the selected forum's choice-of-law rules will apply with respect to determining what law will govern the dispute.
This is a significant change in the law in many parts of the country and will make it much more difficult for a current or former employee to avoid the forum selected in his or her non-competition agreement or other employment-related contract by racing to a courthouse in a different jurisdiction that may be more favorable to the employee's interests. In light of this decision, we recommend that employers review their contract forms and include favorable forum-selection and choice-of-law provisions in their non-competition agreements and other employment-related contracts.
To view a longer summary of the Atlantic Marine decision, see Faegre Baker Daniels' December 4, 2013, legal update.