Choice of Forum Clauses in Texas Non-Compete Agreements

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

In the 2007 case of In re AutoNation, Inc., the Texas Supreme Court faced an argument that enforcement of a forum-selection clause in a covenant not to compete, such as selecting an out-of-state forum (in this case Florida) for a suit against a Texas resident, would violate Texas public policy. 228 S.W.3d at 668. The clause would have compelled a Texas worker, working in Texas, to litigate his challenge to his non-compete agreement in Florida, where his nationwide employer was headquartered. The employee argued that such a result would violate public policy and the forum selection clause should be disregarded. The court rejected the argument. Id. at 668-69.

The primary reason for the court’s decision in In re AutoNation, Inc. was that neither Texas courts nor the Texas Legislature had ever declared a fundamental Texas policy requiring every employment dispute with a Texas resident be litigated in Texas. The court explained that therefore its decision was not inconsistent with DeSantis:

Our decision today in no way questions the reasoning of DeSantis, but we decline Hatfield’s invitation to superimpose the DeSantis choice-of-law analysis onto the law governing forum-selection clauses. While DeSantis and the instant case both concern Texas citizens working in Texas for a Florida-based company, there are critical distinctions. DeSantis, decided before the now-applicable version of the Covenants Not to Compete Act and our recent decision in Sheshunoff construing the Act, did not concern a mandatory forum-selection clause or first-filed litigation in the parties’ chosen jurisdiction. DeSantis concerned how Texas courts should construe employment contracts of Texas employees. We observed that “Texas has a materially greater interest than Florida in deciding whether the noncompetition agreement in this case should be enforced.” But we have never declared that fundamental Texas policy requires that every employment dispute with a Texas resident must be litigated in Texas. We recognized in [In re AIU Insurance Company, 148 S.W.3d 109 (Tex. 2004)] that even where Texas statutory provisions specify the application of Texas law, these provisions are irrelevant to the enforceability of a forum-selection clause where no statute “requires suit to be brought or maintained in Texas.” Along similar lines, even if DeSantis requires Texas courts to apply Texas law to certain employment disputes, it does not require suit to be brought in Texas when a forum-selection clause mandates venue elsewhere. No Texas precedent compels us to enjoin a party from asking a Florida court to honor the parties’ express agreement to litigate a non-compete agreement in Florida, the employer’s headquarters and principal place of business.

Id. at 669 (footnotes omitted).

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