06.15.2017 | In The News

Suit to enforce non-compete must be heard in California

Employer denied choices of forum, governing law

A Massachusetts employer’s claims for breach of a non-compete agreement must be litigated in California where the defendant lives and worked for the plaintiff, notwithstanding a Massachusetts forum selection clause in the employment contract, a Superior Court judge has found.

The plaintiff, Oxford Global Resources, LLC, argued that the mandatory forum selection clause in the parties’ agreement was enforceable under Massachusetts law, which the employer asserted governed by virtue of a choice-of-law provision.

But Judge Kenneth W. Salinger granted defendant Jeremy Hernandez’s motion to dismiss on the ground of forum non conveniens, finding both the choice-of-law and forum selection clauses unenforceable in light of California’s strong public policy disfavoring non-competition agreements.

“Since Oxford was hiring Hernandez to work for it in California, the evident reason why Oxford sought to make the Agreement subject to Massachusetts law and require that any lawsuits arising from the contract be brought in Massachusetts was that Oxford wanted to keep Hernandez from enforcing his rights under California law not to be subject to a broad non-competition agreement that barred any solicitation of Oxford’s former or prospective clients,” Salinger wrote. “Under these circumstances, the forum selection clause in the Agreement is not enforceable under California law.

The eight-page decision is Oxford Global Resources, LLC v. Hernandez, Lawyers Weekly No. 12-065-17. The full text of the ruling can be found here.

Showing the way?

The defendant employee was represented by Boston attorneys Barry S. Scheer and Lisa Marie Scalisi.

Scheer said the key to the decision was Salinger’s recognition of the unique protections that California affords employees with respect to the enforceability of non-competes, as well as his finding that the employment agreement at issue was a contract of adhesion.

“The finding of an adhesion contract might not, under certain circumstances, invalidate a choice-of-law provision, [but here the judge found] it worked an unfairness by essentially taking away a right and remedy that Mr. Hernandez  would have otherwise had were this case properly in a California forum,” Scheer said.

Coincidentally, Scheer said, California recently enacted a statute that invalidates similar forum selection clauses in employment contracts. The new law did not apply to his client’s case because it did not become effective until Jan. 1 of this year, Scheer said.

“So [Judge Salinger] really got it right in terms of how California views the fundamental importance of protecting its employees and making sure that California courts hear any claims that originate out of acts and transactions in California,” Scheer said.

Noting that Massachusetts legislators have failed in recent efforts to enact laws that would limit the use of non-competes in the employment context, Scalisi said Oxford Global Resources hopefully will be seen as underscoring the need for such reforms.

“Perhaps a result like this and seeing how a state like California is protecting its citizens will convince Massachusetts legislators to emulate [California] and pass legislation,” she said.

Plaintiff’s counsel James P. Ponsetto, David G. Thomas and James Vant did not respond to requests for comment.

Boston business litigator Jason A. Manekas, meanwhile, said he viewed Oxford Global Resources as a narrow ruling. Changes in one or two minor facts would have resulted in a different outcome, he said.

“The decision was driven by two factors,” Manekas said. “One, there was nothing to link the employee to Massachusetts in any way, shape or form other than an adhesion contract. That, coupled with the fact that California has such a strong public policy against non-competition agreements, saved the employee here.”

California employee

The plaintiff is a recruiting and staffing agency headquartered in Beverly. According to court records, the defendant is a California resident who was recruited and hired by the plaintiff to work in an entry-level position as an account manager at the company’s Campbell, California, office. The defendant received an annual salary of $50,000.

In accepting the plaintiff’s offer of employment, the defendant signed a “protective covenants agreement” that contained confidentiality, non-competition and non-solicitation provisions. In addition, the agreement provided that it was governed by Massachusetts law and that any action arising from or relating to the contract must be brought in Massachusetts.

In 2016, the plaintiff sued in Suffolk Superior Court, alleging that, after leaving the company, the defendant breached the protective covenants agreement by using customer information obtained during his employment with Oxford to solicit customers for a competing California business.

The defendant moved to dismiss based on forum non conveniens, arguing the case should be heard in California.

“[T]here was nothing to link the employee to Massachusetts in any way, shape or form other than an adhesion contract. That, coupled with the fact that California has such a strong public policy against non-competition agreements, saved the employee here.”

— Jason A. Manekas, Boston

Forum non conveniens

In deciding whether the mandatory forum selection clause in the protective covenants agreement was enforceable, Salinger first addressed the threshold issue of whether the agreement was governed by Massachusetts or California law.

The judge concluded that the Massachusetts choice-of-law provision was unenforceable as the agreement itself was a contract of adhesion. Salinger found it “apparent” that the defendant had neither the opportunity nor bargaining power to negotiate whether California or Massachusetts law defined the scope of his obligations under the non-competition, non-solicitation and confidentiality agreements.

“The complaint specifically alleges that Oxford would not have hired Hernandez if he did not sign the Agreement, which makes clear that Hernandez had no opportunity to negotiate these issues,” the judge wrote.

Salinger noted the general rule that contracts of adhesion are unenforceable if they are unconscionable, unfair or offend public policy.

In this regard, the judge also found it was “apparent” that the choice-of-law clause “was an attempt by Oxford to circumvent California’s strong public policy against the enforcement of non-competition agreements.”

Salinger observed that, absent the choice-of-law clause, California law would govern the plaintiff’s contract claims since that state had the most significant relationship to the transaction and the parties at issue. Apart from undisputed facts that the defendant was a California resident recruited and hired by the plaintiff to work in California, Salinger wrote that “Oxford has alleged no facts and presented no evidence suggesting that Hernandez’s contract with and work for Oxford implicated Massachusetts in any way.”

The judge rejected the plaintiff’s argument that its protective covenants agreement did not violate California law because it only barred the defendant from competing by using the company’s confidential information.

Salinger wrote that under both Massachusetts and California law an employee is “free to carry away his own memory” of customer names and other customer information.

“[T]he complaint alleges that Hernandez breached the Agreement merely by soliciting companies and individuals that he knew were customers of or consultants placed by Oxford,” Salinger wrote. “The non-competition restriction that Oxford seeks to enforce therefore goes far beyond what is permitted under California law, or for that matter, under Massachusetts law.”

Ruling the Massachusetts choice-of-law provision unenforceable, the judge proceeded to find the agreement’s forum selection clause unenforceable under applicable California law. Salinger observed that a forum selection clause may be given effect under California law, even when the provision is part of a contract of adhesion.

However, the judge found that enforcing the Massachusetts forum selection clause in the plaintiff’s case would have the effect of thwarting a clear California public policy disfavoring broad non-competition agreements. For that reason, Salinger concluded that the forum selection clause in the protective covenants agreement was unenforceable under California law.

The judge then turned to the question of whether the plaintiff’s decision to bring its claims in Massachusetts should otherwise be given deference. Salinger wrote that, under the doctrine of forum non conveniens, a plaintiff’s decision to bring suit in a permissible forum generally should stand “unless an adequate alternative form is available and the relevant private and public interests strongly favor litigating the case elsewhere.”

Here, the judge concluded it would be “unfair” to force Hernandez to defend himself in a Massachusetts court and that justice would best be served by ordering dismissal so that the action could be litigated in California.

In weighing the private interests at stake, Salinger found it would be easier and more efficient for both parties to litigate the case in California.

“Since everything relevant to this case happened in California, it appears that all relevant witnesses are located in California and cannot be compelled to testify in Massachusetts,” Salinger wrote. “All other relevant evidence is presumably either located in California or available electronically so that it has no bearing on which forum is more convenient.”

The judge further concluded Hernandez would be unable to adequately defend himself unless the case was moved to California.

The judge likewise found that the public interest factors supported moving the case to California. Salinger wrote that California had a “much stronger” interest than Massachusetts in determining whether the defendant breached his contract or engaged in tortious conduct by attempting to lure the plaintiff’s customers to a competitor in California.

“And the business operations that Oxford claims were unlawfully harmed are located in California,” Salinger wrote. “Massachusetts has very little interest in the outcome of this lawsuit.”

Originally published in Massachusetts Lawyers Weekly, June 15, 2017