On October 19, 2017, the Court of Appeals for the Third Circuit ruled that New Jersey based Mary Kay consultants could not bring a claim in New Jersey federal court against Mary Kay for alleged violations of the New Jersey Wage Payment Law (“NJWPL”). The court relied upon the broad forum-selection clause in the consulting agreements between the parties, which mandated that “any dispute or controversy . . . concerning any matter relating to this Agreement . . . be submitted to the jurisdiction of the courts of the State of Texas.”
The consultants – New Jersey residents who performed their work under the agreements in New Jersey – argued that their statutory-based NJWPL claim did not fall within the scope of the forum-selection clause. The court, applying Texas law in accordance with the contracts’ choice-of-law provisions, concluded that because the claim related to the working relationship between the consultants and Mary Kay, the claim necessarily implicated the contents of the consulting agreements. Because the consultants did not overcome their exceptionally heavy burden of avoiding the enforcement of the Texas forum-selection clause, the Third Circuit affirmed the lower court’s dismissal of the action.
While the decision represents a strong win for employers and the freedom to contract, its implications are not without limitation. Parties are not at liberty to select forums and governing laws that have absolutely no relationship to the parties and the dispute. Here, the parties’ choice of Texas law and the Texas forum undoubtedly had the requisite connection to the parties and the dispute, as Mary Kay is headquartered in Texas.
Additionally, as the court took pains to point out, the consultants did not challenge the enforceability of the forum-selection clause, and instead limited their arguments to the scope of the clause. Cognizant of the “predicament” for plaintiffs seeking the substantive protections of the employment laws of their home state, where they perform substantially all of their work, the court explained that it is incumbent on plaintiffs to challenge the enforceability of the clause itself, not merely its scope.
Parties to employment contracts are strongly encouraged to carefully consider the ramifications of choice-of-law and forum-selection clauses before litigation arises, lest they find themselves in a foreign jurisdiction with laws which may be unfavorable to their interests.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.