Court Applies Choice of Law Provision in Non-Compete Dispute

Joseph Dietrich and Thomas Swider worked for Senture, LLC, selling services and support for government security programs. Specifically, Mr. Swider and Mr. Dietrich worked on the government’s Transportation Workers’ Identification Credential (“TWIC”) program.

In 2007, they left Senture and joined a competitor, SAIC, Inc., shortly thereafter. Around the same time, SAIC obtained a subcontract with Lockheed Martin to do TWIC work similar to what Senture had developed. Lockheed Martin scaled back Senture’s involvement and shifted responsibility to SAIC for the TWIC work.

Senture sued Mr. Dietrich and Mr. Swider for violating non-compete provisions in their employment contracts by improperly assisting SAIC to win Lockheed’s TWIC business. Mr. Dietrich and Mr. Swider moved to dismiss the claims.

The court considered whether Kentucky law or Virginia law applied to the validity and enforceability of the non-compete contracts. The employment contracts had a choice of law provision which stated Kentucky law applied. Senture is a Kentucky company. However, the employees argued that Virginia law should apply because they worked in Virginia and the case was pending there.

Under federal law, a “choice of law” clause is presumed valid “unless enforcement is shown by the resisting party to be unreasonable under the circumstances.” The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). In other words, absent a showing that the provisions of the clause “are unfair or unreasonable, or are affected by fraud or unequal bargaining power,” Paul Business Systems, Inc. v. Canon U.S.A., Inc., 240 Va. 337, 342 (1990), or that the parties did not clearly intend for the designated law to govern the terms of the contract, Black v. Powers, 628 S.E.2d 546, 555 (Va. Ct. App. 2006), a court will give full force to the choice of law provision in a contract.

Here, the choice of law provision invoking Kentucky law was valid. The employment contract clearly intended Kentucky law to apply. The company was based in Kentucky. The employees understood that the company had strong ties to Kentucky. Thus, the validity of the non-compete contract turned on Kentucky law.

Bottom Line: Before you sign a non-compete contract, flip to the last pages. You will likely see a section called “choice of law” that identifies which state’s law will apply to the non-compete’s interpretation, validity, and enforcement. Each state has its own contract laws. A non-compete that might be valid under Pennsylvania law could be invalid under Virginia law. It is important to speak with an attorney about your non-compete who is familiar with the state law that controls the contract.

Download: Senture, LLC, v. Joseph E. Dietrich, et al., Case No. 2:08cv154 (E.D. Va. 2008)