9th Circuit Says Forum Selection and Choice of Law in Employment Agreement Violate California Law

On March 14, 2022, the 9th Circuit affirmed the U.S. District Court for the Central District of California’s decision in DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp. and Stryker Corp., that invalidated the New Jersey forum selection clause in the employment contract of Stryker’s former sales associate as a matter of California law and denied Stryker’s motion to transfer the litigation to New Jersey. Though forum selection clauses are generally enforceable under federal law, the 9th Circuit reasoned that deference must be given to state law in determining the validity of a forum selection clause before considering whether the clause is enforceable under 28 U.S.C. § 1404(a).

The case involved a former Stryker medical device sales associate, Jonathan Waber, who was employed by Stryker in California and who signed an employment contract with Stryker without legal representation. The agreement included non-competition and non-solicitation provisions, and also included forum-selection and choice-of-law clauses requiring adjudication of contract disputes in New Jersey. After less than one year of employment with Stryker, Waber left Stryker to work for one of its competitors, DePuy. After receiving a cease-and-desist letter from Stryker, DePuy and Waber preemptively filed a declaratory judgment action in the U.S. District Court for the Central District of California against Stryker and its subsidiary, Howmedica.

The lawsuit asserted, among other things, the New Jersey forum selection clause in Waber’s employment agreement with Stryker was invalid under Cal. Labor Code § 925, which prohibits an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that requires the employee to adjudicate outside of California a claim arising in California or that deprives the employee of the substantive protection of California law with respect to a controversy arising in California. Although Section 925 does not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement, Waber was not represented by counsel in connection with the Stryker employment agreement and therefore he sought to void the New Jersey forum selection and choice-of-law provisions. Stryker sought to dismiss the case or transfer it to New Jersey. The District Court held that the forum selection and choice-of-law clauses were invalid as a matter of California law. The District Court, applying California’s choice-of-law rules as opposed to New Jersey’s, found the clauses unenforceable under Cal. Labor Code § 925, denied Stryker’s request to transfer the matter to New Jersey under § 1404(a), and the court found the restrictive covenants void under California law. The 9th Circuit affirmed.

Key Takeaways

  • The 9th Circuit gives deference to state law when considering forum selection clauses in employment contracts.
  • When drafting an employment agreement for a California-based employee, employers should carefully consider the inclusion of forum selection and governing law provisions, and other provisions that may be voidable or unenforceable under California law (such as restrictive covenant provisions that may be void under Cal. Bus. & Prof. Code § 16600).
  • If an employer wants non-California forum selection or governing law provisions to apply to an employment contract with a California employee, it should insist that the prospective (or current) employee is represented by counsel at the time the agreement is executed, regardless of whether the agreement contains restrictive covenants.
  • Being the first to file in court can provide a significant advantage.