I am regularly asked by employees to review various types of employment contracts, including employee non-competition agreements. More often than not these employees are Tennessee residents who work in a Tennessee-based office (or home office) and whose job duties are typically performed in Tennessee. Despite those factors, the contracts presented to them often contain two terms quite troubling to lawyers, but which go unnoticed by our clients.

The first of those terms is generally called a “choice of law” provision. This purports to state the parties’ desire as to which state’s law is to be applied when interpreting the contract. To the extent each of the parties are residents of Tennessee and conduct all or most of their business operations in Tennessee, this provision usually is of no concern, as it will often declare Tennessee law as applicable. Absent a choice of law provision, determining what law applies can be difficult, however, in instances where one or both of the parties conduct business in multiple states, reside in different states vis-à-vis each other, and job performance occurs in multiple states. I have noticed a rising trend, however, where employment contracts involving a Tennessee-based worker, and whose job duties are to be performed substantially in Tennessee, nonetheless impose the law of some far distant state for interpreting the contract in the event of a litigated dispute.

The second and somewhat related contract term is what is generally called a “forum selection clause.” A “forum selection clause” actually mandates the particular court in which a lawsuit must be filed. An ever increasing number of employment contracts presented to or signed by Tennessee-based employees contain clauses requiring that all legal disputes be filed in a state unrelated to where the work is actually performed. For instance, it is not unusual to see an employment contract involving a national employer require that a lawsuit be filed in New York or Texas, even though the actions giving rise to a dispute between them occurred in Tennessee, relevant witnesses reside in Tennessee, the contract was signed in Tennessee, and the employee lives and works in Tennessee.

In some instances, a large multistate employer has a legitimate reason for insisting on these “other state” contract terms. It may legitimately claim that with operations and employees in dozens of states, it is too difficult for the employer to keep up with the differing state laws pertaining to its workforce and that a unified applicable law and the consistency of one court jurisdiction provides uniformity for all employees.

In some instances, however, “choice of law” and “forum selection clauses” are used simply as a means of gaining an unfair advantage on an employee and discouraging legal challenges filed by the employee. For instance, I recently represented a Tennessee resident who signed a contract with a Georgia-based entity requiring imposition of Alabama law and that all lawsuits be filed in Mobile County, Alabama. In these instances, I am asked whether an employee must abide by these contract terms and no doubt incur substantial additional legal costs litigating many hundreds of miles away from where he works and lives.

A very recent opinion of the Tennessee Court of Appeals provides some guidance on this question. While that case did not involve an employment matter, the contract principles addressed by the Court apply in all contracting situations. In that case, an amusement facility in Nashville required all participants to sign a release of liability form. The release set California law as the governing law of the contract, and further provided that lawsuits concerning injuries received by the customer and the terms of the contract must be filed in a California court. Following an injury to the participant, suit was filed in a Tennessee court, despite the express terms of the release contract. The amusement facility asked the Tennessee trial court to dismiss the lawsuit based on the contractual “forum selection clause.” The trial court refused to do that and the question was presented to the Tennessee Court of Appeals.

The Court of Appeals found that both the California choice of law and California forum requirements violated Tennessee law. The key factor on both terms was that “no material connection exists between the transaction at issue and California.” As it turns out, neither the injured party (a Tennessee resident) nor the owner of the amusement facility (a Nevada corporation) had any substantial relationship to California. In addition, all witnesses to the injurious event were residents of Tennessee.

This decision reminds us that Tennessee law provides a “choice of law” provision requiring application of another state’s law will only be honored when the other state has a “material connection to the transaction at issue.” The Court expressed similar concerns regarding “forum selection” provisions.

If you are a Tennessee employee who has been presented with any form of employment agreement that requires legal disputes to be filed in a distant state or that another state’s law be applied when interpreting the agreement, or you have already signed such an agreement and a dispute has arisen between you and your employer, the cost difference between litigating in your home state versus a distant one may be thousands of dollars in attorney’s fees. Before you surrender your position on account of the threat of litigating afar, or commit to having to do that at a substantially greater cost, you should obtain the advice of competent Tennessee counsel who may be able to provide a local alternative.

If you would like to speak to John Lawhorn about this of any other matter, he may be reached at (865) 546-9321.