Recently, the Maryland Court of Appeals took the position, albeit in dicta, that the state’s Wage Payment and Collection Law reflects a “strong” public policy of Maryland and urged Maryland courts to reject as unenforceable any future out-of-state forum selection provisions contained in employment agreements. While just one decision, employers with Maryland-based employees should review any such provisions in their agreements. Moreover, it also serves as a reminder that every employer with multi-state operations (even different states of incorporation and principal places of business) should carefully consider forum selection clauses when drafting or revising employment agreements. This is not just “boilerplate” that you throw in at the end of the agreement.
Most employment agreements, even for otherwise at-will employees, contain certain “forum selection” clauses, also known as choice of law and venue clauses. These clauses often look something like this:
The laws of the state of West Texizona will govern any dispute arising from or relating to this Agreement. The parties submit to the jurisdiction of the state of West Texizona and courts for or in Capital City, Central County, West Texizona, and agree that any legal action or proceeding relating to this Agreement may be brought in those courts.
In this example, the first sentence identifies which state’s laws will apply to the agreement (choice of law). The second sentence governs the location of any disputes about this agreement (choice of venue). The choice of law clause is designed to determine up front what law the parties (and courts) will look to determine enforceability of the provisions in the agreement. Choice of venue determines where any legal proceedings will be held in the event the parties engage in legal proceedings over the agreement. Despite carefully crafted forum selection clauses, courts will not always honor the parties’ choice.
In the Maryland case, an employee who lived in Maryland sued his former D.C.-area, but Virginia-based, employer for unpaid wages, liquidated damages, and attorney’s fees. The employer argued that Virginia law applied to his claims since the parties had entered into an employment contract in Virginia (The parties’ agreement did not include a choice of law provision). The appeals court rejected the employer’s argument because the case did not involve the validity, enforceability, interpretation, or construction of the agreement and nothing—express or implied—in the agreement applied Virginia statutory, regulatory, or case law. Accordingly, the court found that Maryland law should apply.
The Maryland Court of Appeals went further, though, by expressing its view that “in Maryland, the protections afforded the timely payment of wages owed are quite important, and many of our laws dealing with the subject reflect our strong public policies in that regard.” Accordingly, the opinion urged other courts to reject forum selection clauses that selected other states’ laws. This position directly rejects earlier state and federal decisions that took a more equivocal position on the importance of Maryland law.
Insights for Employers
The court’s position demonstrates that state courts will often favor their own laws first, notwithstanding what the parties might have agreed to in the agreement. Employers, like the one in this case, without any forum selection clauses in their employment agreements should consider whether and what State’s law to adopt now so as not to find themselves dragged into an unwanted or even unfavorable forum. Employers that use forum selection clauses, particularly those with employees in Maryland, should carefully consider what effect decisions like these may have on their agreements.