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Massachusetts Superior Court Invalidates Forum Selection Clause and Dismisses Employer’s Action To Enforce a Noncompetition Agreement

Posted in California Courts, Commercial Litigation, Employment Litigation, Litigation Trends, Massachusetts Courts

 

Oxford Global Resources, LLC v. Hernandez
Superior Court of Massachusetts
(Suffolk, Business Litigation Session)
Docket No. 1684-CV-03911-BLS-2


 

The Business Litigation Session of the Suffolk Superior Court in Massachusetts invalidated a contractual forum selection clause and dismissed an employer’s action to enforce a noncompetition agreement signed by a former employee, because the employer forced a Massachusetts forum upon a California employee in order to circumvent California public policy against the enforcement of noncompetition agreements.

Plaintiff-employer Oxford Global Resources, LLC (“Oxford”), a recruiting and staffing company specializing in placement of information technology contractors to businesses, hired defendant-employee Hernandez to an entry-level position as an account manager. When hired, Hernandez had to sign an offer letter and a separate “protective covenants agreement” which contained confidentiality, noncompetition, and non-solicitation provisions. The agreement also contained a forum selection clause requiring that any lawsuit arising from the agreement be brought in Massachusetts, and a choice-of-law provision providing for the application of Massachusetts law to the agreement.

Oxford hired Hernandez to work in its Campbell, California, office. Hernandez interviewed for the position in California; signed the offer letter and agreement in California; was trained by Oxford in California; conducted all of his work for Oxford in California; and reported to Oxford supervisors who were located in California. Indeed, the Court found that all relevant events and all of Oxford’s alleged injuries occurred in California. The only connection to Massachusetts, the Court noted, was Oxford’s allegation that its principle place of business was there.

Oxford sued Hernandez in Massachusetts alleging that Hernandez used information regarding the identity of Oxford’s customers to solicit those customers on behalf of a competitor in California. Hernandez moved to dismiss the action under the doctrine of forum non conveniens, which permits dismissal when “the court finds that in the interest of substantial justice the action should be heard in another forum.” Mass. Gen. Laws, ch. 223A, § 5. Despite the forum selection clause, Hernandez prevailed and the Court dismissed the action in order for it to be heard in a California court.

The Court engaged in a three-step analysis leading to dismissal. First, it determined that California law governed the agreement despite the choice-of-law provision favoring Massachusetts law because the agreement was an improper contract of adhesion since Hernandez did not have a meaningful opportunity to negotiate it. Oxford’s offer to Hernandez was a take-it-or-leave-it offer, no negotiation of the agreement’s terms took place, and Hernandez had no bargaining power as an entry-level employee with no previous experience in the industry. The Court discounted the agreement’s boilerplate language that Hernandez had the opportunity to consult a lawyer and that he was not under duress as insufficient to overcome the disparity in bargaining power between the parties.

Significantly, the Court found the choice-of-law provision to be an apparent attempt by Oxford to circumvent California’s public policy against the enforcement of noncompetition agreements. Without the provision, California law would have governed the agreement because California had the most significant relationship to the transaction and the parties, as all relevant events occurred there, and because Oxford “alleged no facts and presented no evidence suggesting that Hernandez’s contract and work for Oxford implicated Massachusetts in any way.” The Court therefore concluded that enforcement of the agreement’s choice-of-law provision “would result in substantial injustice to Hernandez by depriving him of the freedom to compete against Oxford in California that is guaranteed under California law, and it would do so based solely on a contract clause that Hernandez had no meaningful opportunity to negotiate when he was hired.”

In the second step of its analysis, the Court determined that the agreement’s forum selection clause was unenforceable under California law. Although generally enforceable, forum selection clauses in combination with choice-of-law provisions that violate public policy are themselves unenforceable as against public policy.

The final step of the Court’s analysis was to determine the proper venue for Oxford’s action in the absence of an enforceable forum selection clause. The Court exercised its broad discretion in concluding that it would be unfair to compel Hernandez to defend himself in Massachusetts, where all relevant events and witnesses were located in California, and the private and public interests weighed heavily in favor of California as the proper venue. Accordingly, the Court dismissed the action in Massachusetts and determined that California was the appropriate forum for Oxford to litigate its claims against Hernandez.

This case presents several key takeaways for Massachusetts practitioners and businesses dealing with employment agreements. For one, boilerplate language in an employment agreement is not free from scrutiny over the true bargaining power in the employer-employee relationship. Moreover, “remembered information” concerning the identity of customers—the employee’s “own memory of customers’ names, needs, and habits”—is too broad to be protected by the employer as confidential information, although an employer’s compilation of such information in a list or database will likely be protected. Finally, the mere location of a company’s principle place of business may not be enough to ensure that selection of that forum for litigation is adequate; some additional aspect of the work performed or the contract entered into must implicate the forum state.