Who has jurisdiction over your national non-compete agreement?

A number of Maryland residents sign non-compete agreements with their employers. These agreements are fairly common in some fields, as they allow companies to protect a customer base. At the same time, non-compete clauses can hinder an employee’s career prospects. Those who are asked to sign employment contracts should seek legal counsel to ensure the contracts protect their own short- and long-term priorities. Additionally, when an employer tries to enforce a non-compete contract, it can be wise to talk to an employment law attorney as these contracts are not always legally enforceable.

In a recent case, a California man entered into a non-compete agreement with his Pennsylvania-based employer. A contract dispute ensued when the man later left the company to work for a competitor.

The case quickly became complicated. Although this man worked in California, his non-compete stated that the agreement would be governed by the law of Pennsylvania as “applicable to contracts entered into and performed in Pennsylvania.” This is where it becomes confusing, as the man did not enter into his contract in that state.

So, a court needed to decide which state had jurisdiction over the dispute. Both states have very different employment contract laws, so determining which state’s laws applied to the contract was critical.

A trial court decided that California law should be applied due to the wording of the contract. The employer appealed this decision, and a three-judge panel has now found that the trial court misinterpreted the language in the contract, and it reversed that court’s decision.

Had California maintained jurisdiction over the matter, the man would not have been bound the by the non-compete contract; under Pennsylvania law, the company may be able to enforce the contract.

This case is a reminder of how important it is for Maryland residents to consult an attorney before signing non-competes. These agreements are generally carefully crafted by employers in order to protect their interests. It is important that employees fully understand their rights when entering into restrictive contracts.

Source: Forbes, “In Non-Compete Litigation, Choice of Law Provisions Matter – A Lot,” Richard Tuschman, Jan. 9, 2014