Using a Forum Selection Clause in Employment Agreements

A forum selection clause in an employment contract is a valuable tool for companies in the multifamily industry who maintain operations in multiple states. A forum selection clause allows parties in an employment contract to designate the state where lawsuits must be brought should any controversy arise, including but not limited to wrongful termination, unpaid wage disputes, and discrimination claims. This is important for companies that have a presence in California but are headquartered in another state.

Using a forum selection clause in at least some of the company’s employment agreements has several advantages. A forum selection clause allows the employer to better manage litigation by minimizing associated risk factors. The use of these clauses facilitates efficiency by reducing the number of law firms that the company uses, while providing a familiar procedural terrain and planning for the convenience of anticipated witnesses.

Forum selection clauses are generally enforceable. For example, both state and federal courts in California consistently uphold forum selection clauses, even in employment cases. In order for a forum selection clause to be valid, there must be a reasonable basis for choosing the selected forum, the chosen forum must provide employees with adequate and available remedies, and the agreement itself must not violate public policy. The provision or clause must also be evident and apparent to provide employees with reasonable notice. Finally, such clauses can be used with an arbitration provision in the employment agreement.

A closely related contractual term is a choice-of-law provision, which allows the employer to designate which state’s laws will apply in the event that an employment dispute arises. A choice-of-law provision is valid if there is a reasonable basis for the parties’ choice-of-law provision. The court will examine whether or not the chosen state’s law would be in conflict with a fundamental policy of the state that holds a materially greater interest in the controversy.

Courts have some discretion in whether or not to enforce a forum selection clause or choice-of-law provision in any particular case, including on grounds of unconscionability. For example, a forum selection clause is more appropriate for a highly paid executive who travels on business to the selected forum than it would be for a minimum wage employee who cannot afford to travel to the selected forum to enforce his rights. Moreover, courts will not enforce a choice-of-law provision that causes an employee to effectively waive statutory rights that are a matter of public policy in his or her home state.

Therefore these clauses should be drafted and used carefully, with the assistance of corporate counsel.

For more information or questions regarding forum selection clauses, choice of law provisions, or for assistance in drafting employment agreements, please contact Frank J. Coughlin, Esq. at (714) 558-7886.