[authors: Jason B. James, Joshua B. Durham]
We recently posted an article addressing the importance of reading your contracts. The lesson we hope you learned was that you cannot gloss over the boilerplate provisions at the back of any contract. You know which ones we are talking about, the boring ones. These “standard” provisions of a contract, however, can ultimately prove to be game changers, particularly if your employees are fulfilling their contractual duties to you in other states.
Take the recent case Perficient, Inc. v. Pickworth in the Western District of North Carolina. A consent to jurisdiction/forum selection clause in the parties' contract would have made a significant difference, and not having such a clause means that a North Carolina company will now have to litigate its trade secret claim in another state. Litigating on someone else's turf will undoubtedly increase the plaintiff's litigation costs going forward.
Here is what happened. In May 2008, Elizabeth Pickworth accepted an employment position in the Atlanta office of a consulting firm, Exervio, headquartered in North Carolina. Pickworth executed an Employee Agreement (Agreement) that contained restrictions on her post-employment activities and the use and disclosure of the company’s confidential information. Additionally, the Agreement contained a North Carolina choice of law provision. It did not, however, include any consent to jurisdiction/forum selection clause.
Pickworth worked exclusively with Exervio’s clients in Georgia; in particular, she was assigned to Coca Cola beginning in early 2010 until the termination of her employment on May 31, 2011. In April 2011, Perficient, “acquired substantially all of the assets” of Exervio, including the Employment Agreement, and continued to utilize Exervio’s Charlotte headquarters after the acquisition.
Within a month of her resignation, Pickworth allegedly began operating her own consulting firm in Georgia, serving Coca Cola as a client and engaging in other conduct that violated the terms of the parties’ Agreement. Perficient filed suit in North Carolina state court alleging (1) misappropriation of trade secrets; (2) breach of contract; (3) tortious interference with business expectancy; and (4) unfair and deceptive trade practices. Pickworth removed the case to the Western District and subsequently filed a Motion to Dismiss for lack of personal jurisdiction or, in the alternative, to transfer venue to the US District Court for the Northern District of Georgia.
The federal court dismissed Perficient’s complaint without prejudice, meaning it can re-file in another jurisdiction. The court determined that even though Pickworth was working for a North Carolina company and sometimes traveled to North Carolina for business, she had no other connections with the state. Since her allegedly wrongful conduct (working with Coca Cola) occurred in Georgia, not North Carolina, the court simply did not have personal jurisdiction over her. If Perficient wants to pursue its claims, it will have to do so in Georgia.
In making its decision, the court noted that the Agreement lacked a forum selection clause. Forum selection clauses require that in the event of a dispute, the parties will litigate the case in a specified jurisdiction. Presumably, the contract also lacked a consent to jurisdiction clause, in which one party, generally the employee, consents to jurisdiction in a particular state. Arguably, had the Agreement contained a consent to jurisdiction/forum selection clause in addition to the choice of law provision agreed upon by the parties, the court would have had personal jurisdiction over Pickworth. These clauses "create a presumption in favor of jurisdiction and will be upheld as fair and reasonable so long as there is a rational nexus between the forum selected and/or consented to, and either the parties to the contract or the transactions that are the subject matter of the contract.”
If your company has employees working for you in other states, and these employees may be in a position to learn valuable trade secrets or weaken your relationship with important customers, your agreements with these employees should include choice of law provisions as well as consent to jurisdiction/forum selection clauses. Otherwise, if the employee breaches the contract and uses your trade secrets in another state, or steals away a customer that is not in North Carolina, you may be forced to sue that employee in some other state. In other words, make these provisions standard ones in your Agreements, and you may end up preserving your home field advantage in the event a rogue employee walks off with your company’s confidential and proprietary information.