On February 27, 2012, a California federal judge for the Northern District of California, decided the case of Hegwer v. American Hearing and Associates, finding that the alleged illegality of a non-compete clause in an employment agreement involving a California employee has no bearing on a legal forum selection clause. Accordingly, the Court transferred the employee’s declaratory relief action to Pennsylvania federal court.
Plaintiff Jay Hegwer initially filed suit against his former employer, Defendant American Hearing and Associates alleging three state claims: declaratory relief, fraud, and unfair business practices.
According to the court’s decision, Hegwer had been searching for a job in early 2010, and contacted a corporate recruiter, John Frank, who passed his resume to David Young, the regional manager for AHAA. Young contacted Hegwer to arrange an interview, and at the time, Hegwer advised him that he required a salary of $150,000. Young and Frank both informed Hegwer that the associate manager position they were considering him for paid a base salary of $100,000 per year, but that he could expect to earn $50,000 in commissions annually. Hegwer was hired as an associate manager, and signed an employment agreement containing a provision stating that all litigation arising out of or related to the agreement would take place in Chester County, Pennsylvania. The agreement also contained an arbitration clause, a non-solicitation/non-competition clause, and a choice of law clause specifying the agreement was governed by Pennsylvania law.
According to the decision, soon after he was hired, Hegwer went to Pennsylvania for a training session led by another employee, Deonda Weldon (“Weldon”). Weldon allegedly told Hegwer that only one company employee actually made any sort of commission, and that if he truly expected to make $50,000 in commissions, he should just “quit now.” In June, Hegwer was terminated for allegedly sexually harassing a fellow trainee, a claim he believes was fabricated by Weldon.
Hegwer filed suit in California state court, in Marin County. AHAA removed the case to federal court on the basis of diversity jurisdiction, and then moved to have the case dismissed for improper venue, or to be transferred to Pennsylvania.
Hegwer argued that the forum selection clause should not be enforced because the other provisions of the employment agreement, including the arbitration, non-compete and non-solicitation clauses, were unenforceable under California law. The court dismissed this argument, finding that whether other provisions of the agreement were unenforceable was irrelevant to the enforceability of the forum selection clause. Hegwer also argued that the enforcement of the forum selection clause would prevent him from having his day in court, since the case would be sent to arbitration. The court found this argument speculative and unpersuasive.
Finally, Hegwer argued that he would not be able to pursue the case if it took place in Pennsylvania, because of the extensive travel costs. The court found that given Hegwer currently resides in Wyoming, the cost would be similar to travel to either Pennsylvania or California, and as a result, Hegwer had failed to show that enforcement would deprive him of his day in court.
Ultimately, the court found the forum selection clause was enforceable, and venue was improper in California. The court relied on M/S Bremen v. Spata Off-Shore Co., where a forum selection clause is considered unreasonable, and thus, unenforceable if: the inclusion of the clause was a product of fraud, undue influence, or an imbalance of power, (2) the forum is so gravely difficult and inconvenient that the party challenging the clause will for all practical purposes be deprived of its day in court, or (3) the clause would contravene a strong public policy of the forum where the suit was brought. 407 U.S. 1, 15 (1972). Here, Hegwer failed to show the clause was gravely inconvenient, and therefore the case was transferred to the Eastern District of Pennsylvania.
The court’s ruling in Hegwer is in line with traditional rulings on the subject. The courts have routinely rejected notion that “expense or inconvenience of prosecuting an action in the designated forum" rises to the level of depriving one’s day in court. R.A. Argueta v. Banco Mexicano, 87 F. 3d 320 (9th Cir. 1996).