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Bryan E. Kuhn
Counselor at Law, P.C.
Business & Employment Law Attorney

Are Forum Selection Clauses Enforceable?

On Behalf of | Dec 11, 2014 | Blog

Our office has received a number of calls from employees of Colorado companies who are currently working overseas. Their employment, and litigating legal issues arising in their employment, raises interesting questions of venue, jurisdiction, and conflict of law. For example, an employee may live in New Jersey and work in Afghanistan for a company based in Colorado. These cases present a conflict of laws question because it is unclear which state, or even which countries’, laws should apply to the employment dispute. Similarly, some employment agreements contain a forum selection clause that requires the employee to bring a lawsuit in a different state or even a different country than where the individual resides.

A forum selection clause in a contract with a conflict of laws element allows the parties to agree that any litigation resulting from that contract will be initiated in a specific place. These clauses which would typically include some variation of the following words, “this Agreement shall be construed in accordance with the laws of the State of Colorado without giving effect to the doctrine known as conflict of laws,” are common and can make future litigation more predictable, and in some cases less expensive. The clause can reference a particular state or federal court, a particular set of procedures that will apply, or require a certain type of dispute resolution process, such as mediation or arbitration.

In Colorado, such clauses are considered presumably valid, and should be enforced unless enforcement is shown by the resisting party to be “unreasonable” under the circumstances. Cagle v. Mathers Family Trust, 295 P.3d 460, 464 (Colo. 2014). Under federal case law, which Colorado has adopted, there are three reasons a forum selection clause may be unenforceable: 1) if the inclusion of the clause in the agreement was the product of fraud or overreaching; 2) if the party wishing to repudiate the clause would effectively be deprived his day in court were the clause enforced; and, 3) if enforcement would contravene a strong public policy of the forum in which suit is brought. M/S Bremen v. Zapata Off-Shores Co., 407 U.S. 1 (1972).

A Ninth Circuit case in 2013 addressed this issue, a former U.S. Air Force pilot, Mr. Petersen, was hired to be a flight instructor in Saudi Arabia for Boeing International Services, a wholly-owned subsidiary of The Boeing Corporation. Prior to departing for Saudi Arabia, Mr. Petersen was required to sign a preliminary employment agreement without a forum selection clause. After employment, he signed a new contract that included a provision requiring legal disputes to be heard in Saudi Arabia, or that he must immediately return to the United States at his own expense. Mr. Petersen signed the second agreement after which his passport was confiscated and he was effectively imprisoned in his housing compound under miserable living conditions; and his work environment was marked with safety and ethics violations. When Mr. Petersen attempted to resign and return to the United States, the employer refused to return his passport for a period of nearly three (3) months. Mr. Petersen developed an upper respiratory infection and was permanently maimed due to inadequate surgical treatment for an Achilles tendon tear. Finally, Mr. Petersen with assistance of the United States Consulate was able to return the United States where he filed suit in Arizona against Boeing alleging breach of contract, as well as several other statutory and common law claims. The district court dismissed the entire lawsuit without a hearing for improper venue holding that the forum selection clause was enforceable and the matter should have been brought in Saudi Arabia as agreed.

Mr. Petersen provided a sworn affidavit indicating that he lacked the resources to litigate in Saudi Arabia and was concerned about returning, even if possible due to the current visa situation, in light of having been held as a “virtual prisoner” there. Mr. Petersen argued that the contract was forged under duress and that he would be denied his day in court if forced to travel to Saudi Arabia. The Court of Appeals found that the district court abused its discretion by granting Boeing’s motion to dismiss without an evidentiary hearing and remanded the case to the district court to determine whether or not the forum selection clause is enforceable.

If you have a question about an international or national forum selection clause or any other terms of an employment contract, contact us at www.BryanKuhnLaw.com/ to discuss your legal rights.

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