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The Uncertain Enforceability of Forum Selection Clauses in the Era of COVID-19
August 25, 2020


All information in this COVID-19 Response Resource issue is effective as of August 25, 2020.

A forum selection clause included in an employment contract permits the contracting parties to specify where a lawsuit must be filed and litigated if there is a dispute among the parties. Idaho federal courts regularly enforced forum selection clauses that specified a locale other than Idaho and would transfer a case brought by an Idaho resident plaintiff in Idaho federal court to the locale specified in a forum selection clause. However, the Ninth Circuit recently held that forum selection clauses specifying a locale other than Idaho are unenforceable under Idaho law.  

Because the enforceability of forum selection clauses vary from jurisdiction to jurisdiction, employers should determine whether a forum selection clause contained in an employment agreement would be enforced by the jurisdictions in which the employer or employee resides, particularly now that many employees are working remotely due to the COVID-19 epidemic. 

Gemini Technologies, Inc. v. Smith & Wesson, Corp.

In Gemini Technologies, Inc., an Idaho-based company filed litigation in the U.S. District Court for the District of Idaho against non-Idaho resident defendants. The contract at issue in the litigation included a forum selection clause that specified Delaware as the required location for any dispute between the contracting parties. Based thereon, the district court held that the forum selection clause was enforceable and required the case to be transferred to, and litigated in, Delaware. 

The Ninth Circuit reversed the district court’s decision, as well as a long-standing body of case law, and held that Idaho statutory law overrode the traditional policy of enforcing forum selection clauses. Specifically, the court relied on Idaho Code § 29-110(1), which states that it is against Idaho public policy for a contract to restrict a party’s ability to enforce its rights in Idaho courts. The court further relied on the U.S. Supreme Court case M/S Bremen v. Zapata Off-Shore Co., which held that a forum selection clause is unenforceable if it is against the “strong public policy of the forum in which suit is brought, whether declared by statute or judicial decision.” Because Idaho statutory law establishes a strong public policy against enforcing forum selection clauses, the Ninth Circuit held that the clause at issue in Gemini was not enforceable and that the case should remain in Idaho federal court. 

Many states, like Idaho, have passed a wide range of statutes addressing the enforceability of forum selection clauses. These statutes vary in scope, with some applying only to contracts in which at least one party is a resident of that state, while others apply whenever the incident in question occurred in the state, regardless of the residency of either party. The validity of state anti-choice-of-forum statutes has been considered by many courts at both the state and federal level, and, as a result, anti-choice-of forum laws have been met with mixed reception in the lower courts, enjoying better favor in some circuits than in others. Nevertheless, because the Supreme Court has never ruled decisively on whether state or federal law controls to determine the validity of forum selection clauses, states have the ability to fight back against the use of unjust forum selection clauses and protect their citizens by enacting statutes to address the enforceability of such clauses. 

Why is this important for employers? For many reasons: Certain jurisdictions have the reputation for being either employer or labor friendly; Statutory employment laws may also have material differences that may be more or less receptive to certain claims; Either side may find themselves with a hometown advantage, if they have a presence in the community or personality that resonates with a jury. When remote employment is optional (e.g., for the personal convenience of the employee), employers have a stronger argument for objecting to the jurisdiction of forums that have not been contractually agreed upon. However, when telecommuting is a condition of employment, for example when an employee is ordered to work from home, courts are more likely to find that an employer is subject to the jurisdiction of courts in the employee’s state of residence. 

As a result of the COVID-19 pandemic and resulting stay-at-home orders, many employees are required to work remotely from home for their employers. In this environment, an employer may be engaging in the type of “voluntary, affirmative economic activity of substance” that has been held to give rise to personal jurisdiction in other cases.  Employers seeking to control exposure to litigation in another state may include a forum selection clause in employment contracts dictating that any disputes arising while employees are working remotely must be resolved in the jurisdiction where the employer’s principal place of business is located. However, as the Ninth Circuit’s decision in Gemini demonstrates, the enforceability of such clauses can vary not only from jurisdiction to jurisdiction, but also with respect to the subject matter of the dispute. Furthermore, given the uncertain times that the COVID-19 pandemic has caused, some courts have explicitly recognized “the COVID-19 pandemic created havoc in the legal system,” and have held that forum selection clauses are unenforceable under these circumstances. 

Takeaways

If you are considering including a forum selection clause in a contract with an employee, consider the following: Where does the employee reside and work? Where is employer located? Will a court in the selected forum specified in employment contract enforce the forum selection clause? Answering these questions at the outset could save you time and expense in the long-term should a dispute arise from an employment contract.  

Slade D. Sokol is an attorney in the Boise, Idaho office of Parsons Behle & Latimer. He can be reached at 208-562-4889 or ssokol@parsonsbehle.com. Special thanks to Gabrielle Vietri who assisted on this article. Gabrielle served as a 2020 Summer Associate with Parsons Behle & Latimer and is currently a 3L at the Sandra Day O’Connor College of Law at Arizona State University.

 

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