Court Enforces Non-Compete Forum Selection Clause

When you sign a non-compete contract, be sure to review the entire agreement for any forum selection clause or choice of law provisions.

What is a forum selection clause?

A forum selection clause designates the place where the parties to an agreement can address disputes arising from the contract. These clauses are often located near the end of the contract, and state something along the lines of, “Any disputes regarding the enforcement of this agreement shall be brought in [a particular court].”

Most forum selection clauses in Virginia non-competes will select Virginia courts as the forum, but be sure that the forum is not some far off place before signing. It is a lot more expensive to bring or defend a lawsuit hundreds of miles from home, which is why you want to pay particular attention to forum selection clauses before you sign.

What is a choice of law provision?

A choice of law provision designates the law that applies to the interpretation of a contract.  For non-competes, this is important because it may be unenforceable under Virginia law, yet enforceable under another state’s laws. Often, the forum state and the choice of law are the same—but, not always—so, be sure to check the contract.

Here is a recent example of a Virginia case that was halted because the non-compete had non-Virginia forum selection clause.

Background

Robert Staples worked for Guardian Glass at a company location in Ashland, Virginia.

In 2010, he signed an employment contract with a non-compete provision, which precluded Staples from working for a competitor within a 100-mile radius of any company location where he worked for a period of six months after termination.

The contract had a choice of law provision, applying Michigan law to the interpretation of the non-compete, and a forum selection clause, requiring any action in connection with the enforcement of the non-compete be brought in a Michigan court.

In 2012, Staples resigned and joined a competitor, Glass America. His new employer was located within the prohibited 100-mile radius of Guardian Glass’s Ashland location.

The Virginia Lawsuit

Within one week, Guardian Glass sent a cease and desist letter to Staples and Glass America, stating it would file an action in a Michigan court to enforce the non-compete unless Staples complied with the contract.

In response, Staples filed a declaratory judgment action in the Fairfax County Circuit court, asking the judge to declare that the non-compete was overbroad and unenforceable.

The Michigan Lawsuit

Within hours of the Virginia lawsuit’s filing, Guardian Glass filed a lawsuit against Staples for breach of contract in the Oakland County Circuit Court in Michigan. The Michigan judge scheduled a hearing on Guardian Glass’s request for an injunction to stop Staples from working for Glass America.

At the Michigan hearing, Staples did not appear. The Michigan judge entered an order prohibiting Staples from working in violation of the non-compete. The case was then removed from state court to federal court.

Halting the Virginia Lawsuit

The case was removed to federal court, because the parties were from different states, and a federal court is allowed to hear the dispute based on diversity jurisdiction. Guardian Glass asked the Virginia judge to issue a stay of the Virginia declaratory judgment action while the Michigan cases proceeded.

The Virginia judge granted Guardian Glass’s request for a stay of the declaratory judgment action. Under federal law, a court can issue a stay (i.e. hit the pause button) on lawsuits to avoid duplicate litigation.

The non-compete’s forum selection clause said that a Michigan court could decide any disputes about the non-compete contract. Therefore, the judge decided to halt the Virginia case while the Michigan case moved forward. As a result, an employee in Virginia had to fight a lawsuit hundreds of miles from his home because of a forum selection clause.

Key Takeaway: When you review a non-compete, check for a forum selection clause and the choice of law provision. If you agreed to handle all non-compete disputes in a particular place, that is where any subsequent case will likely be filed. Make sure you read the whole contract before signing and agreeing to the identified forum selection because it can create an inconvenience.

Download: Robert Staples v. Guardian Auto Glass, LLC, Case No. 1:12-cv-00477-JCC-IDD (E.D. Va. 2012)