In a recent dispute between an Ohio employer and a California-based employee, the 6th Circuit Court of Appeals affirmed the enforcement of a non-competition covenant over the employee's objection. See Down-Lite International, Inc. v. Chad Altbaier, et al., No. 20-3354 (6th Cir. Jul. 28, 2020). The employee appealed the district court's application of Ohio law because of "California's hostility towards covenants not to compete." Id. at 3. In reaching its decision to affirm the lower court's application of Ohio law, the 6th Circuit conducted a choice-of-law analysis and held that because the agreement contained an express choice-of-law provision, the court needed only to examine whether California, the employee's home state, has a "materially-greater-interest" in the dispute than Ohio. Id. at 3. Applying its own precedent, the 6th Circuit held that while "California has a meaningful interest in protecting its resident from Down-Lite's desire to restrict competitive conduct," such interest was not "materially greater than Ohio's interest in protecting one of its closely held businesses operating in the global economy." Id. at 4.
What is not discussed in this decision is the impact of the forum on the outcome of this appeal. The employer here, Down-Lite, initiated litigation in Ohio and preemptively dictated that the litigation would be in its home state. It is possible that if Down-Lite had been slower to act, its ex-employee may have sought a declaratory judgment in California that the non-compete was invalid under California law. Because the forum would be in California, that California court may have held that protecting its own resident and furthering California's public policy against restrictive covenants was more important-or at least not materially less great-than enforcing the parties' Ohio choice-of-law provision. Thus, Down-Lite's proactive move to file suit in Ohio may have been outcome determinative.
There are two important takeaways from the Down-Lite decision. First, employers should consider using both express choice-of-law and choice of forum provisions in their restrictive covenant agreements. Doing so will provide the employer a uniform agreement to use with employees, regardless of where such employees are domiciled, and predictability in how its agreements will be enforced. Second, to increase the likelihood that its express choice-of-law and forum provisions will be honored (and to avoid motion practice over venue), employers are advised to act promptly when their contractual rights are violated. If your employment agreements have not been reviewed recently, we recommend contacting experienced counsel to assist you.
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