Forum Selection Clauses Contained in Employment Agreements are Valid and Will Be Enforced
August, 2006
In Boss v. American Express Financial Advisors, Inc., 6 N.Y.3d 242, 844 N.E.2d 1142, 811 N.Y.S.2d 620 (2006), three first-year financial advisors brought suit against their employer, American Express Financial Advisors, Inc. (“AEFA”), on behalf of themselves and the putative class action members who were similarly situated. At issue was whether the forum selection clause contained in Plaintiffs’ employment agreement, requiring that any action be brought in a Minnesota court, should be enforced. The New York State Court of Appeals, which is New York’s highest court, agreed with the lower courts that the Complaint should be dismissed. 6 N.Y.3d 242, 844 N.E.2d 1142, 811 N.Y.S.2d 620.
Plaintiffs filed suit against their employer in December, 2002, alleging that AEFA violated the laws of the State of New York, more specifically, Labor Law §193 and the rules of the Division of Labor Standards (12 NYCRR) §195.1. Plaintiffs, who were all first-year financial advisors at the time they signed their contracts, entered into employment agreements with AEFA. The employment agreements set forth Plaintiffs’ monthly salary and contained an expense allowance, which required Plaintiffs to pay a monthly fee to cover all overhead expenses. These agreements also contained a forum selection clause wherein Plaintiffs and AEFA agreed to the jurisdiction of the Minnesota courts for resolving any controversy in connection with the employment contracts, and agreed that Minnesota law would govern.
In December, 2002, more than four years after Plaintiffs’ employment with AEFA terminated, Plaintiffs commenced this action. Plaintiffs claimed that the salary/expense provision contained in their agreements violated Labor Law §193 and the rules of The Division of Labor Standards (12 NYCRR) §195.1, prohibiting an employer from deducting more than 10% of an employee’s gross wages. Pursuant to the employment agreements, Plaintiffs earned $2,000.00 per month and were required to pay $900.00 per month for expense allowances.
Defendant moved to dismiss the Complaint on the grounds that Plaintiffs brought this action in an improper forum. Pursuant to the forum selection clause contained in the employment agreements signed by Plaintiffs, they were required to bring any action arising from the employment contracts in Minnesota. Plaintiffs argued that the language contained in their employment contracts did not prohibit New York courts from hearing their claim. The Supreme Court, New York County, found the employment contracts “dispositive and noted that there was no evidence that plaintiffs would be denied their day in court in Minnesota.” Boss v. American Exp. Financial Advisors, Inc., 15 A.D.3d 306, 791 N.Y.S.2d 12 (1st Dep’t 2005).
On appeal, the Intermediate Appellate court stated: “The forum-selection and choice-of-law clause is prima facie valid. In order to invalidate the clause, plaintiffs must show that its enforcement ‘would be unreasonable, unjust, or would contravene public policy, or that the clause is invalid because of fraud or overreaching.’” 15 A.D.3d at 307-308 (citations omitted).
Plaintiffs also argued that New York employment laws provide greater protection to its workers than do the laws of Minnesota. As such, Plaintiffs claimed that enforcement of the Minnesota labor laws violated public policy. The Intermediate Appellate court stated: “Even assuming that New York provides greater protection to its employees, ‘[p]ublic policy, per se, plays no part in a choice of law problem’. Indeed, ‘a mere difference between the foreign rule and our own’ does not warrant a refusal to apply the foreign law.” Id. at 308 (citations omitted). Plaintiffs did not allege that the deductions themselves were not valid business expenses, rather they argued that the amount deducted was not permissible under New York law. The Intermediate Appellate court noted that this type of transaction does not violate the principles of justice. Id.
Plaintiffs specifically contracted to bring any claim arising out of the employment agreements in Minnesota; hence, Plaintiffs were not denied a forum. They simply brought their action in the wrong forum and are now time barred from filing their claim in the proper forum, Minnesota. Plaintiffs are not permitted to bring their claim in the New York courts simply because New York law provides a longer statute of limitations. In their signed employment contracts, Plaintiffs agreed to submit to Minnesota courts and proceed under Minnesota law.
Plaintiffs appealed to the New York Court of Appeals, arguing that the forum selection clause contained in their employment agreements was permissive and not mandatory. The provision stated:
This Agreement is a Minnesota contract, governed by Minnesota law. All of the payments you make to IDA Life are payable in Hennepin County, Minnesota. You expressly waive any privileges contrary to this provision. You agree to the jurisdiction of [the] State of Minnesota courts for determining any controversy in connection with this Agreement.
The Court found that the contractual language unequivocally provided that any disputes are to be decided by the Minnesota courts and that Minnesota law governs. 811 N.Y.S.2d 621.
Plaintiffs also argued that the expense allowance deductions violated New York labor laws and thus were “unreasonable, unjust and contrary to the public policy concerns of New York.” Id. at 622. The Court did not express an opinion on the merits of Plaintiffs’ choice of law argument, stating, that Plaintiffs should have made such a claim to a Minnesota court rather than a court in New York. Therefore, the Court of Appeals affirmed the Appellate Division’s order and upheld the contractual forum selection clause.
Learning Point:
Pursuant to Boss, forum selection clauses and choice of law provisions contained in contractual employment agreements are valid and will be enforced by New York courts. As such, employers have the option of customizing their employment agreements by selecting forums and the applicable law most favorable to them. •
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