Multinational employers often negotiate, with their key employees, employment agreements and restrictive covenants that prohibit unfair competition across borders. To prevent inconsistent judgments and give the parties a firmer expectation regarding their rights, many employers negotiate choice-of-law and choice-of-forum provisions that select one jurisdiction’s laws or forum over another.

The enforceability of these provisions in the United States was recently affirmed by a Southern District court in Martinez v. Bloomberg LP.1 Martinez holds important lessons for multinational employers concerning the enforceability and limitations of these clauses.

Brian Anthony Martinez started with Bloomberg in 1999 in New York City as a freelance producer. He was hired as a full-time employee in 2000, then spent three years with Bloomberg in Tokyo, and in 2005 was reassigned to Bloomberg’s London office.

Upon joining that office, Martinez entered into a new employment agreement which designated London as his primary place of business. The contract also provided that English law would govern, and that “any dispute arising hereunder shall be subject to the exclusive jurisdiction of the English courts.”

In London, Martinez was promoted to managing director of Bloomberg Television International for Asia, Europe, the Middle East and Africa.

More than six years after moving to London, in 2011, Martinez lost his job in a work force reduction. Shortly thereafter, he sued in New York federal court, alleging employment discrimination under the U.S. Americans with Disabilities Act, as well as the New York State and New York City anti-discrimination laws.

Three days after filing suit in New York, he sued in England under UK employment law. Martinez did not assert any claims for discrimination before the UK tribunal, and later withdrew his action there, citing the high cost of litigating in England. Bloomberg moved to dismiss the New York action for improper venue based on the forum selection clause, and also moved to dismiss the state and city law claims for lack of jurisdiction.2

Martinez did not dispute that the choice-of-forum clause was reasonably communicated to him and was “mandatory.” However, he argued that the clause was not meant to bar statutory claims, but, by virtue of the clause’s express language (“any dispute arising hereunder”), only claims that related to the employment contract per se. He asserted that the discrimination claims could go forward despite the language of the agreement because those claims were statutory, not contractual.

Martinez’s argument might have passed muster under New York law. As U.S. District Judge Jesse Furman noted, a clause mandating arbitration of “any claims arising under [the Employment] Agreement” has been held not to be specific enough to include claims of statutory discrimination.3 That language failed to fairly notify the employee that statutory discrimination claims were also subject to arbitration or to other limitations.

However, the court held that the contract’s UK choice-of-law clause mandated that UK law governed interpretation of the forum selection clause—and unlike the United States, claims of discrimination in England may only be brought if the employment relationship is predicated upon the existence of a valid contract. As a result, the discrimination claim technically arose “under the agreement” because without the contract, under English law, there could be no claim for discrimination. In addition, English law broadly interprets choice of forum clauses, and the words “arising out of” have been interpreted to include every dispute except a dispute as to whether there was a contract at all.

As a result, the court held that the forum selection clause, under English law, included discrimination claims, and enforced the forum selection clause and dismissed the lawsuit.

The court also looked to U.S. law and policy. The U.S. Supreme Court has made clear the “strong federal policy in favor of enforcing forum selection clauses.” Enforcing such clauses “removes uncertainty” in economic transactions, ensures that the parties’ expectations are fulfilled, and complies with the dictates of international comity to respect the integrity and competence of the selected foreign tribunals.4

Enforcing the Clause

The Martinez court took note of Second Circuit law on forum selection clauses. A clause will be enforced if it was reasonably communicated to the party resisting enforcement, it is mandatory and not merely permissive, and the claims involved in the suit are subject to the clause.

If these requirements are met, then the burden shifts to the non-moving party to rebut the presumption of enforceability by showing that the clause was the result of fraud or overreaching; the law to be applied in the selected forum is fundamentally unfair; enforcement would contravene a strong public policy of the forum state; or trial in the selected forum would be so difficult and inconvenient that the party would effectively be deprived of his day in court.5

The plaintiff argued that enforcement was indeed unfair because the statute of limitations on his English discrimination claims had run; the remedies available under English law are materially different than U.S. law because they do not permit recovery of attorney fees; and he could not afford litigation in England.

The court rejected these arguments, though, noting that the validity of a choice of forum clause does not depend on whether a claim would be unavailable to the nonmoving party in the selected forum. Such a loophole would strip choice-of-forum clauses of their value and purpose.

Nor, the court ruled, may a forum selection clause be invalidated simply because the law of the selected forum is less favorable to the plaintiff. The plaintiff had the opportunity to ascertain the differences between U.S. and English law before signing his employment agreement, and the financial burdens were foreseeable since they were largely caused by his decision to litigate initially in both England and the United States.

Critically, the court concluded that Martinez was a “sophisticated international businessman.” Thus, the court declined to be bound by English cases that could be construed to protect the rights of laborers in an employment dispute from an unfavorable forum selection (or mandatory arbitration) clause. Instead, the court considered the agreement to be more in the nature of a commercial contract between parties with equal bargaining power.

Martinez is, somewhat ironically, consistent with the holding of a well-known UK restrictive covenant case that declined to enforce a New York choice of forum clause against employees working in London. In Samengo-Turner v. J&H Marsh & McLennan (Services),6 an English Court of Appeal refused to give effect to a restrictive covenant’s New York jurisdiction clause, where the London-based employees were employed by an English company that belonged to a group of companies headquartered in New York. The brokers had applied to the English court for an anti-suit injunction to stop New York proceedings that had been initiated in the Southern District.

The Court of Appeal granted the injunction on the grounds that the brokers had a “statutory right” to be sued in England under Section 5 of Regulation (EC) No. 44/2001, also known as the “Brussels I Regulation.” The Brussels I Regulation regulates conflict of laws in the European Union. Articles 18 and 20 of the Brussels I Regulation specifically provide that employers can only sue EU-domiciled employees in “matters relating to individual contracts of employment” in the courts of the country in which the employee is domiciled.

Thus, in Europe, the issue of forum selection is a matter of statute, and employers may only sue the employees where they are domiciled. U.S. employers have more flexibility. But, as the Second Circuit’s standards articulated in Phillips, supra, make clear, a court in which an employee is domiciled could well determine that it has a superior interest in hearing a matter than does a remote jurisdiction with which the employee has had little or no contact, particularly if the law of that jurisdiction would contravene the public policy of the employee’s domicile state.

Drafting Clauses

The Martinez court’s willingness to enforce a choice-of-forum and choice-of-law clause that identified a foreign jurisdiction is helpful to employers. Again, these provisions can avoid inconsistent judgments, minimize the risks and costs of claims in multiple jurisdictions, and give the parties a firmer expectation regarding the enforceability of their agreements.

Employers who seek to enforce forum selection clauses should draft them broadly enough to cover any and all claims, including statutory claims like discrimination, and not just contractual ones. The clauses should also use mandatory, not permissive language. Thus, the agreement should provide that the exclusive jurisdiction and law shall be (rather than may be) the city and state of, e.g., New York, N.Y.

And, common sense dictates that if the employee is to be assigned to a non-English speaking jurisdiction, the employer should consider having the employee sign a translated copy of the agreement in the language of the assignment country.

In an upcoming column, we will provide particular guidelines concerning the cross-border enforcement of non-compete agreements, and drafting tips for those. Meanwhile, employers should take note of this important decision and consider whether the choice-of-law and forum clauses in employment agreements and restrictive covenants warrant a second look.

Philip M. Berkowitz is a partner and U.S. cochair of Littler Mendelson’s international law practice; he is based in the New York office.

Endnotes:

1. No. 11 Civ. 7514, 2012 U.S. Dist. LEXIS 113227 (S.D.N.Y. Aug. 10, 2012)

2. Martinez presumably could assert claims under the Americans with Disabilities Act for alleged overseas discrimination because that law prohibits extraterritorial discrimination by U.S. companies against U.S. citizens, regardless of where they work and reside. However, claims under the New York State and New York City laws for alleged overseas discrimination against non-residents may only go forward where the plaintiff can show that the alleged discrimination had an impact in New York. See Hoffman v. Parade Publications, 2010 NY Slip Op 05706 (July 1, 2009).

3. See, e.g., Cronas v. Willis Group Holdings, 2007 U.S. Dist. LEXIS 68797 (S.D.N.Y. 2007). The court’s analysis repeatedly drew parallels between mandatory arbitration and forum selection clauses.

4. Citing Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991); M/S Bremen v. Zapata Off-Shore, 407 U.S. 1, 9-10 (1972); Aguas Lenders Recovery Grp. v. Suez, S.A., 585 F.3d 696, 700 (2d Cir. 2009); Roby v. Corp. of Lloyd’s, 996 F.2d 1353, 1361 (2d Cir. 1993).

5. Phillips v. Audio Active, 494 F. 3d 378 (2d Cir. 2007).

6. [2007] EWCA Civ. 723.