Court Upholds Forum Selection Clause in Employment Agreement

Background Facts

When Cedar Rihani began his employment with Team Express, he signed a confidentiality, non-competition and non-solicitation agreement (the Agreement). One of the provisions in that Agreement provided that, “The agreement, the construction of its terms, and the interpretation of the parties' rights and duties shall be governed by and construed according to the laws of the state of Maryland and venue for all actions arising out of or in any way related to this agreement shall be irrevocably set in Howard County, Maryland.”

Rihani filed a complaint for declaratory judgment against his former employer, asking the federal court, which sits in Baltimore, to declare the Agreement invalid and unenforceable. The employer moved to dismiss Rihini'a declaratory judgment action on the grounds that the Agreement expressly provided that any litigation concerning the agreement must be filed in Howard County.

According to the employer, the clear language of the Agreement specified that any action must be brought in a court physically located in Howard County. Because there is no federal court house in Howard County, the employer maintained that Rihani's declaratory judgment action in federal court must be dismissed. Rihani countered, claiming that the venue provision only requires that his suit be filed in a state or federal court with jurisdiction over Howard County.

In considering this novel issue, the district court acknowledged that the parties may agree to a forum-selection clause that limits the right to remove a case to federal court, assuming there was a federal court jurisdiction. A forum-selection clause may bind parties either to a specific jurisdiction or, as here, a specific venue. As the court found, a mandatory forum-selection clause containing clear language identifying a specific venue for any litigation is enforceable under Maryland and federal law.

In reaching this conclusion, the district court acknowledged decisions from outside of Maryland that have held that a loosely phrased venue-selection provision would not necessarily preclude a federal court from hearing a case, especially where the language in the venue-selection provision referred to “all courts having jurisdiction over that area.” (Emphasis added.)

Here, as the court noted, the language and the venue selection provision were quite specific in describing the venue for all actions arising out of or in any way related to the Agreement as being “irrevocably set in Howard County, Maryland.” As the court found, since the federal court is not physically located in Howard County, it was not an appropriate forum for the resolution of any disputes concerning the Agreement, and Rihani's suit was dismissed.

Bottom Line

This case highlights an important tool that all Maryland employers should consider using when drafting employment agreements. As those agreements are being prepared, it is important to identify what law will apply to the dispute and, more importantly, which court will decide any such disputes that may arise.

In that way, an employer can significantly limit the possibility that disputes concerning its agreements will be litigated in unfavorable or distant jurisdictions. At a minimum, litigating a case in your home county or state, under Maryland law, would generally be less expensive than traveling to a foreign court, such as in California. Moreover, most employers also find it preferable to know exactly what law will be applied in any such disputes.

If an employer fails to include appropriate forum, choice of law and selection clauses in an agreement, then a resourceful plaintiff may seek to litigate the dispute in a forum that may be more beneficial for the plaintiff.

Although the venue selection clause in this case was effective in limiting the lawsuit to Howard County Circuit Court, you may want to consider a slightly broader clause that would limit not only the venue, but also the jurisdiction of the court deemed most appropriate to handle litigation.

One standard clause that is often used is the following:

The parties further agree that any legal actions in connection with this agreement shall be instituted in the [insert appropriate court], as that court shall have exclusive jurisdiction and venue to adjudicate any such actions.

In addition, many employers also include a waiver of jury trial provision, as well, in the agreement, such as the following:

The parties hereby irrevocably and unconditionally waive trial by jury in any legal claim and/or counterclaim, action or proceeding arising out of or related to this agreement or the employee's employment with and separation from the company.

By taking these few steps while drafting an employment agreement, an employer can have greater control over the location and choice of law used to resolve any disputes arising out of the agreement. (Cedar Rihani v. Team Express Distributing, LLC, D.C. MD Civil No. JFM-09-3357, April 30, 2010.)

Kevin McCormick, a member of this newsletter's Board of Editors, is a partner in the Baltimore office of Whiteford Taylor Preston, LLP.

As many employers may know, some employment agreements include a forum-selection clause that specifically identifies the appropriate court to handle any disputes related to the employment agreement.

In this way, if there is litigation over the agreement, it will occur in a forum that is more convenient for the employer, or limit the chance that a lawsuit will be filed in a forum that would not be as favorable. At a minimum, requiring that all lawsuits related to the employment agreement be heard in the county or city where the employer has its principal place of business certainly gives the employer some “home-field advantage,” and reduces the overall costs of the litigation.

A recent decision from the Maryland District Court has upheld a venue-selection provision that required all lawsuits related to the employment agreement at issue to be filed in Howard County, MD. A closer look at this interesting case will provide employers with a useful lesson.

Background Facts

When Cedar Rihani began his employment with Team Express, he signed a confidentiality, non-competition and non-solicitation agreement (the Agreement). One of the provisions in that Agreement provided that, “The agreement, the construction of its terms, and the interpretation of the parties' rights and duties shall be governed by and construed according to the laws of the state of Maryland and venue for all actions arising out of or in any way related to this agreement shall be irrevocably set in Howard County, Maryland.”

Rihani filed a complaint for declaratory judgment against his former employer, asking the federal court, which sits in Baltimore, to declare the Agreement invalid and unenforceable. The employer moved to dismiss Rihini'a declaratory judgment action on the grounds that the Agreement expressly provided that any litigation concerning the agreement must be filed in Howard County.

According to the employer, the clear language of the Agreement specified that any action must be brought in a court physically located in Howard County. Because there is no federal court house in Howard County, the employer maintained that Rihani's declaratory judgment action in federal court must be dismissed. Rihani countered, claiming that the venue provision only requires that his suit be filed in a state or federal court with jurisdiction over Howard County.

In considering this novel issue, the district court acknowledged that the parties may agree to a forum-selection clause that limits the right to remove a case to federal court, assuming there was a federal court jurisdiction. A forum-selection clause may bind parties either to a specific jurisdiction or, as here, a specific venue. As the court found, a mandatory forum-selection clause containing clear language identifying a specific venue for any litigation is enforceable under Maryland and federal law.

In reaching this conclusion, the district court acknowledged decisions from outside of Maryland that have held that a loosely phrased venue-selection provision would not necessarily preclude a federal court from hearing a case, especially where the language in the venue-selection provision referred to “all courts having jurisdiction over that area.” (Emphasis added.)

Here, as the court noted, the language and the venue selection provision were quite specific in describing the venue for all actions arising out of or in any way related to the Agreement as being “irrevocably set in Howard County, Maryland.” As the court found, since the federal court is not physically located in Howard County, it was not an appropriate forum for the resolution of any disputes concerning the Agreement, and Rihani's suit was dismissed.

Bottom Line

This case highlights an important tool that all Maryland employers should consider using when drafting employment agreements. As those agreements are being prepared, it is important to identify what law will apply to the dispute and, more importantly, which court will decide any such disputes that may arise.

In that way, an employer can significantly limit the possibility that disputes concerning its agreements will be litigated in unfavorable or distant jurisdictions. At a minimum, litigating a case in your home county or state, under Maryland law, would generally be less expensive than traveling to a foreign court, such as in California. Moreover, most employers also find it preferable to know exactly what law will be applied in any such disputes.

If an employer fails to include appropriate forum, choice of law and selection clauses in an agreement, then a resourceful plaintiff may seek to litigate the dispute in a forum that may be more beneficial for the plaintiff.

Although the venue selection clause in this case was effective in limiting the lawsuit to Howard County Circuit Court, you may want to consider a slightly broader clause that would limit not only the venue, but also the jurisdiction of the court deemed most appropriate to handle litigation.

One standard clause that is often used is the following:

The parties further agree that any legal actions in connection with this agreement shall be instituted in the [insert appropriate court], as that court shall have exclusive jurisdiction and venue to adjudicate any such actions.

In addition, many employers also include a waiver of jury trial provision, as well, in the agreement, such as the following:

The parties hereby irrevocably and unconditionally waive trial by jury in any legal claim and/or counterclaim, action or proceeding arising out of or related to this agreement or the employee's employment with and separation from the company.

By taking these few steps while drafting an employment agreement, an employer can have greater control over the location and choice of law used to resolve any disputes arising out of the agreement. (Cedar Rihani v. Team Express Distributing, LLC, D.C. MD Civil No. JFM-09-3357, April 30, 2010.)

Kevin McCormick, a member of this newsletter's Board of Editors, is a partner in the Baltimore office of Whiteford Taylor Preston, LLP.