Supreme Court Endorses Use of Forum Selection Clauses

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Most employment agreements contain a forum selection clause. This means that the parties agree that any dispute under the contract must be litigated in the named state or federal court jurisdiction. For employers, in most cases this selection is based on their headquarters location or other area where they are familiar with and have confidence in the mandated courts and their judges. When faced with actual litigation, the opposing party may object to the forum selection clause, especially where all witnesses to the matter may be located in a different state.
 
In December, the U.S. Supreme Court endorsed the use of forum selection clauses, even in the face of such convenience and efficiency arguments. Atl. Marine Constr. Co., Inc. v. U.S. Dist. Ct. was not an employment case, but involved a construction contract between Texas and Virginia companies for work to be performed in Texas. The contract mandated Virginia as the forum for any dispute. The Texas company filed suit in Texas, and the Fifth Circuit Court of Appeals refused to enforce the forum clause based on convenience.
 
The Supreme Court reversed the Fifth Circuit, concluding that the forum selection clause must be obeyed in all but the most exceptional cases. Those exceptions would not relate to convenience alone. The Supreme Court also made clear that this preference applies whether the forum clause identifies state or federal courts.
 
For employers, the forum selection clause can prevent companies from being forced to litigate disputes in employees’ hometowns. They can also deter plaintiff’s attorneys from accepting contingency fee cases where the expense and procedural complications of trying the case in another jurisdiction are involved. This case does not apply to the governing law provisions in the employment agreement, and separate rules apply as to when the employer can choose the laws of a state where the employee does not work. Also, some states have statutes limiting  forum selection clauses, and those laws are not affected by this decision.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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