2 Approaches To NY Choice Of Law In Employment ContractsMay 13, 2022 – Law360 Expert Analysis
Recent changes to laws governing restrictive covenants in various jurisdictions have put a renewed focus on the enforcement of choice-of-law provisions in employment agreements.
Such clauses have taken on increased relevance in this period of growing remote work and employee mobility, where it may no longer be a safe assumption that employers and their employees are domiciled in the same state, and where there is greater likelihood of a conflict of laws when a dispute arises between them. What role will a choice-of-law clause play in this analysis?
In the context of restrictive covenant disputes, New York courts have not always strictly applied choice-of-law clauses, most notably in cases involving California residents.
But in 2015, the New York Court of Appeals decided Ministers & Missionaries Benefit Board v. Snow, which has sparked a renewed debate as to whether choice-of-law clauses should be strictly enforced, and the role that another jurisdiction's public policy should have on that decision.
Two 2021 federal decisions from the U.S. District Court for the Southern District of New York, Willis Re Inc. v. Herriott and Medtronic Inc. v. Walland, take differing approaches to the Ministers & Missionaries decision. Both involved California residents.
The Willis Re court held that Ministers & Missionaries was a game changer and required strict enforcement of a New York choice-of-law clause, with the only relevant public policy being that of New York.
The Medtronic decision took a much narrower view of the Ministers & Missionaries decision and continued to apply a traditional conflict of laws analysis, declining to enforce a New York choice-of-law clause in light of California's countervailing public policy against restrictive covenants.
These decisions, and the analyses provided therein, should be taken into account by employers, employees and their attorneys arguing for or against the application of a choice-of-law provision in New York courts.
New York Decisions Prior to Ministers & Missionaries
Prior to Ministers & Missionaries, New York courts analyzed traditional choice-of-law factors — e.g., significant contacts, interest in litigation and public policy — to determine which jurisdiction's laws to apply to restrictive covenant disputes, even when the employment agreement contained an express choice-of-law provision. This sometimes resulted in New York courts declining to enforce New York choice-of-law clauses if the facts of a given case indicated that another jurisdiction had a greater interest in the matter.
For example, in the 2003 case Production Resource Group LLC v. Oberman, the court analyzed a New York choice-of-law provision in an employment contract between a California-based employee and his New York-headquartered employer. The Oberman court recognized that, historically, New York courts had generally honored parties' choice-of-law provisions, as long as the chosen jurisdiction had sufficient contacts to the transaction.
However, the Oberman court also observed that New York courts were not bound by such a provision if the application of the chosen state's law would contravene a fundamental policy of a state with a materially greater interest in the issue, and whose laws would apply but for the choice-of-law provision.
There, as the employee was a California resident working out of California and who took only a few trips to New York during his tenure, the Oberman court determined that California had the greater interest in resolving the parties' dispute. In light of California's strong public policy against restrictive covenants, the court declined to enforce the parties' choice of New York law, and denied a request for injunctive relief.
Ministers & Missionaries
In its December 2015 decision in Ministers & Missionaries Benefit Bd. v. Snow, the New York Court of Appeals provided additional guidance on the enforcement of choice-of-law provisions. That case concerned a New York choice-of-law clause in a retirement and death benefit plan administered by the New York-based plaintiff.
The parties agreed that New York law would apply to the contract, but disputed whether the application of New York law necessarily included the application of a New York statutory choice-of-law directive.
If the statutory choice-of-law directive were applied, the court would need to determine whether to apply the laws of New York or Colorado, where the decedent last resided and ultimately passed away. The laws of these jurisdictions would dictate which parties remained beneficiaries of the plans.
In undertaking the choice-of-law analysis, the court held that an express New York choice-of-law provision removed the need to apply either a common-law, conflict-of-law analysis or a statutory choice-of-law directive.
The court further observed that a primary purpose of including a choice-of-law provision is to avoid the time and expense of a conflict-of-laws analysis — a purpose that would be frustrated if the court were to undertake such an analysis notwithstanding an express provision in the contract. The court accordingly held that the substantive law of New York should apply.
In light of Ministers & Missionaries, are New York courts required to strictly enforce choice-of-law provisions in employment agreements, without engaging in a conflict-of-law analysis as in Oberman? The Willis Re and Medtronic courts reached conflicting conclusions.
Willis Re v. Herriott
In Willis Re v. Herriott, the plaintiff sued a former insurance broker, and California resident, who it alleged left the company to join a competitor and solicited the plaintiff's clients. The relevant restrictive covenants were contained in agreements designating New York as the choice of law and choice of forum.
The employee argued that California had the greater significant contacts and material interest in the case and that California's public policy would be violated by the application of New York law — essentially, the argument made in Oberman.
The Willis Re court rejected this argument, referring to Oberman, among other cases, as an example of how New York used to address conflict-of-law issues before Ministers & Missionaries was decided. According to the court, Ministers & Missionaries was a game-changing decision, which held that a New York choice-of-law provision in a contract obviates a conflict-of-law analysis.
In reaching this decision, the court recognized that the matter was not entirely settled, as the U.S. Court of Appeals for the Second Circuit had recently engaged in a conflict-of-law analysis in U.S. v. Moseley despite the existence of choice-of-law clause in the relevant agreements.
Though the Willis Re court found this decision hard to square with Ministers & Missionaries and deemed it possible that the Second Circuit had overlooked the case and applied the wrong analysis, the court nevertheless undertook a conflict-of-law analysis.
In undertaking this analysis, however, the court held that recent New York decisions had made clear that the only relevant public policy was New York's, not California's. Accordingly, the court held that New York law applied to the dispute.
Medtronic v. Walland
In Medtronic, which was decided several months after Willis Re, the SDNY again considered the impact of Ministers & Missionaries on a choice-of-law dispute. Notably, however, the court reached a different conclusion.
There, plaintiff Medtronic brought a motion for preliminary injunctive relief against the former CEO of a company it had acquired. The employee was initially hired while residing in California, where he was later promoted to CEO and negotiated his employment agreement. He then moved to New York to begin the new role.
A couple of years later, he returned to California and resigned, taking another position with a competing company. Medtronic sued to enforce restrictive covenants in the employment agreement, and, citing to Ministers & Missionaries, argued that the presence of a New York choice-of-law provision barred the court from conducting a conflicts-of-law analysis.
The court disagreed. Although the court recognized that a contractual choice-of-law provision was "generally determinative," it observed that courts will not adhere to such a selection where there is no reasonable relationship between the chosen law and the parties or transaction, or where the chosen law would violate some fundamental policy of a state that has a materially greater interest in the issues than the chosen state.
Contrary to the plaintiff's argument, the court did not believe that Ministers & Missionaries eliminated these exceptions. According to the court, none of the parties in that case contested whether they were bound by New York law, and thus the Court of Appeals had no occasion to examine any potential exceptions that barred the application of the choice-of-law provision.
Accordingly, the court held that Ministers & Missionaries set a far narrower precedent. In reaching this decision, the court did not refer to or distinguish the Willis Re decision, although it acknowledged that other cases read Ministers & Missionaries more broadly.
The court ultimately determined that California had a materially greater interest than New York in the matter and that New York law would violate the fundamental policy of California prohibiting enforcement of noncompetition covenants. The court thus denied Medtronic's request for injunctive relief.
The enforceability of choice-of-law clauses continues to be the subject of intense debate in the restrictive covenant context. Two cases in the SDNY reached different conclusions in the past year concerning the impact of the Ministers & Missionaries case.
In connection with such choice-of-law disputes, the parties should continue to carefully analyze the law of the relevant jurisdictions, which may include not only the jurisdiction selected in the employment agreement, but where the parties are domiciled.
Close attention should be paid to whether these jurisdictions differ in their enforcement of restrictive covenants, including as matter of public policy. If such differences exist, the parties should continue to closely analyze which jurisdiction arguably has the materially greater interest in the dispute, in the event the court decides to take a narrow interpretation of the Ministers & Missionaries case, like the Medtronic court.
Counsel should be prepared to make all relevant arguments in support of or against the application of a choice-of-law clause where a conflict of law exists. Further, employers should continue to keep a close eye on where their employees are located in tailoring their restrictive covenants.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 A variety of jurisdictions, including Colorado, Illinois, and Washington D.C. have recently changed their laws governing restrictive covenants.
 Ministers & Missionaries Benefit Board v. Snow , 26 N.Y.3d 466 (2015).
 Willis Re Inc. v. Herriott , 550 F.Supp.3d 68 (S.D.N.Y. 2021).
 Medtronic Inc. v. Walland , No. 21 CIV. 2908 (ER), 2021 WL 4131657, at *2 (S.D.N.Y. Sept. 10, 2021).
 Production Resource Group LLC v. Oberman , No. 03-CV-5366 (JGK), 2003 WL 22350939 (S.D.N.Y. Aug. 27, 2003).
 No. 03-CV-5366 (JGK) (S.D.N.Y. Aug. 27, 2003).
This article originally appeared in Law360. Access may require a subscription.