Virginia Federal Court docket Rejects Massachusetts’ Statutory Prohibition on Out-of-State Discussion board Choice Clauses in Noncompete Agreements – Type Of

A number of states over the previous few years have handed laws prohibiting the use in noncompete agreements (and different employment-related agreements) of out-of-state choice-of-law and discussion board choice provisions. A couple of of those states’ legal guidelines embrace enforcement mechanisms with stringent penalties, similar to California, which supplies for injunctive reduction and attorneys’ charges to an aggrieved worker; Washington, which entitles aggrieved workers to precise damages or statutory penalties of $5,000, in addition to their attorneys’ charges; and, starting in August, Colorado, the place any violation of that state’s noncompete statute (together with the prohibition on out-of-state choice-of-law and discussion board choice provisions) might result in civil and legal penalties.

Different states, nonetheless, similar to Massachusetts and Illinois, don’t have any such enforcement mechanisms for violations of their statutory prohibitions of out-of-state choice-of-law and discussion board choice provisions. Thus, whereas an worker might prevail inside these states on an argument that an out-of-state choice-of-law or discussion board choice provision is void, they’d not be entitled to any damages or attorneys’ charges. Workers in these states should, due to this fact, depend on a courtroom in one other state to cede its personal state’s sovereignty to the legislature of the worker’s dwelling state. There could also be little incentive for courts to take action underneath rules of federalism and state sovereignty. Why ought to a Virginia courtroom let the Massachusetts legislature dictate what it does, particularly when the events have contracted in any other case?

This was borne out in a latest determination of the US District Court docket for the Japanese District of Virginia, by which the Court docket addressed the requirement within the Massachusetts Noncompetition Settlement Act (“MNCA”) that any civil actions referring to worker noncompete agreements have to be filed in Massachusetts state courtroom. In The Hilb Group of New England, LLC v. Susan LePage, the defendant, LePage, signed a Confidentiality and Non-Solicitation Settlement (the “Settlement”) in 2019 that included a discussion board choice clause granting unique jurisdiction of any disputes arising thereunder to “the courts of the Commonwealth of Virginia situated within the Metropolis of Richmond and of america District Court docket for the Japanese District of Virginia, Richmond Division.” LePage resigned in 2021 and joined a competitor. Plaintiff filed swimsuit for breach of the Settlement in Virginia, and LePage moved to dismiss the criticism for improper venue.

Amongst different issues, LePage argued that “implementing the discussion board choice clause will go towards Massachusetts’s robust public coverage curiosity as manifested within the [MNCA].” The Court docket rejected that argument, holding:

First, federal regulation preempts Massachusetts’s procedural guidelines. Second, because the Supreme Court docket defined in [M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)], any disfavor Massachusetts harbors in direction of discussion board choice clauses—as manifested within the MNCA—doesn’t weaken the presumption of enforceability that discussion board choice clauses get pleasure from in federal courtroom. Certainly, to permit the MNCA to trump the events’ contractual alternative of discussion board would permit provincial attitudes to dominate. Lastly, no Massachusetts courtroom has held that the MNCA manifests the state’s robust public coverage. Thus, the enforcement of the Settlement’s discussion board choice clause wouldn’t go towards a robust public coverage of Massachusetts.

That is an attention-grabbing determination as a result of the MNCA doesn’t even appear to use to LePage’s Settlement – ​​certainly, the Court docket identified in a footnote that the events disputed whether or not it utilized – as a result of the Settlement didn’t embrace a noncompete provision, and the MNCA doesn’t apply to different types of post-employment restrictive covenants similar to non-solicitation covenants. The Court docket handled this in a footnote, opinion that “it needn’t determine whether or not the MNCA applies to the Settlement” as a result of “the Court docket finds the Settlement’s discussion board choice clause enforceable regardless of the MNCA.” (Emphasis added). In different phrases, the MNCA is irrelevant to this evaluation –which, in and of itself, says one thing concerning the MNCA’s requirement that claims referring to noncompetes have to be filed in Massachusetts state courtroom.

Beneath this reasoning, even the place the MNCA applies to an settlement, an out-of-state discussion board choice clause would nonetheless be enforceable towards a Massachusetts worker in federal courtroom outdoors of Massachusetts based mostly on preemption and rules of federalism and state sovereignty. It’s unclear whether or not a courtroom would rule in a different way if a courtroom in Massachusetts have been to carry that “the MNCA manifests the state’s robust public coverage” as a result of problems with preemption and what the Court docket termed “provincial attitudes” would stay, however the Court docket in LePage did point out the shortage of such a holding as a related issue.

Regardless, have been LePage to have lived and labored in California or Washington (or, starting August 9, 2022, in Colorado), she would have had the choice of submitting an motion in these states looking for to invalidate the discussion board choice clause and, if she succeeded, she would have been entitled to injunctive reduction, damages, and/or attorneys’ charges. However as a result of the MNCA doesn’t have the same enforcement mechanism offering for such cures, that possibility was not viable (or, on the very least, economical) in Massachusetts. She might have filed a declaratory judgment motion asking a Massachusetts courtroom to declare the Virginia discussion board choice clause void, however the motion probably would have been analyzed underneath conventional first-filed jurisprudence. Whether or not she succeeded or not, LePage wouldn’t have been entitled to injunctive reduction, damages, and/or attorneys’ charges, making it an costly endeavor and any victory pyrrhic.

In sum, some out-of-state choice-of-law and discussion board choice clauses stay enforceable, even towards workers who stay or work in some states that purport to ban them. Employers ought to beware, nonetheless, of these states by which there are civil and legal penalties for violations of their respective noncompete legal guidelines (together with prohibitions on out-of-state choice-of-law and discussion board choice provisions).

Please attain out to any member of EBG’s Commerce Secret & Worker Mobility apply group or your EBG contact to debate these necessary points additional.