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’s a forum selection clause?
A forum selection clause designates the place where disputes will be brought if the non-compete has to be enforced. At the end of the contract, there’s usually a paragraph that says, “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 a Virginia court as the forum. But be sure that the forum is not some far off place before signing. It’s a lot more expensive to bring or defend a non-compete case 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 the non-compete. This is important because a non-compete that might be invalid under Virginia law could be enforceable under another state’s law. Often, the forum state and the choice of law are the same, but not always, so be sure to check the contract.
Here’s a recent example of a Virginia case that was halted because the non-compete had an out-of-state forum selection clause.
Robert Staples worked for Guardian Glass in Ashland, Virginia.
In 2010, he signed an employment contract with a non-compete provision, which precluded working for a competitor within a 100-mile radius of any company location where he worked for a period of six months.
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 employment was within the prohibited 100-mile radius of the non-compete.
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.
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 to federal court.
Halting the Virginia Lawsuit
The Virginia case was removed to federal court – since the parties were from different states, the federal court is allowed to hear the dispute based on diversity jurisdiction. Then, Guardian Glass ask the Virginia judge to issue a stay of the Virginia cases 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 – all because of a forum selection clause.
Key Takeaway: When you review a non-compete, check for a forum selection clause and choice of law provision. If you agreed to handle all non-compete disputes in a particular place, that’s where the case will likely be filed. Make sure you read the whole contract before acting and agree to the forum selection because it can be a huge inconvenience to get involved in a lawsuit hundreds of miles from your home.