Last week, the California Court of Appeal issued a decision highlighting the need for employers, especially large employers with operations and employees in several states or countries, to take great care in drafting mandatory forum selection clauses and to always be aware of the relevant law in the chosen jurisdiction. In Richtek USA, Inc. v. UPI Semiconductor Corp., 2015 WL 7479125, a state Court of Appeal affirmed that a mandatory forum selection clause in an employment agreement is binding on both the employee and the employer.

In that case, Richtek Technology Corporation, a Taiwanese corporation, manufactured circuit boards, along with Richtek USA, its California subsidiary. These companies brought claims in California state court for misappropriation of trade secrets against uPI Semiconductor Corporation – a competitor established by three of Richtek’s former employees. The former employees, who were also named as defendants, are residents of Taiwan, but established uPI as a California corporation. They were alleged to have established uPI while working for Richtek, and allegedly used Richtek trade secrets to do so. In response to Richtek’s complaint, the former employees filed a demurrer, arguing that Richtek’s misappropriation claims should be analyzed under Taiwanese law, and were barred by Taiwan’s two-year statute of limitations for misappropriation claims. The Court sustained the demurrer.

Richtek then filed an amended complaint, seeking to plead around the statute of limitations bar by relying on allegedly newly-discovered evidence of misappropriation that occurred within the statute of limitations period. The defendants demurred again, arguing that the “new misappropriation” was merely a continuing use of the trade secrets claimed in the original complaint, and thus was not a new misappropriation. The Court agreed and sustained the demurrer without leave to amend. In addition, the Court found that Richtek’s claim against one employee was barred from being heard in a California court by the forum selection clause in the employment agreement. Specifically, that clause reads as follows:

“Should [the employee’s] violation involve any . . . disclosure of secrets or any other infringement . . . [the employee] agrees that Xinzhu local court is to be the court with governing jurisdiction for first trial.”

On appeal, Richtek argued that the forum selection clause was only mandatory for claims brought by the employee against Richtek, not the reverse. The Richtek Court swiftly rejected the argument, finding that, under its plain language, the forum selection clause applied to the employee’s alleged violation of the employment agreement through the disclosure of Richtek’s trade secrets. Second, the clause’s use of the phrase “is to be” (in reference to where the dispute was to be litigated) evinced the parties’ intent the forum selection clause be mandatory. Lastly, the Court also pointed out that when faced with a forum selection clause, “[t]he factors that apply generally to a forum non conveniens motion do not control …” In fact, in such cases, forum selection clauses are generally to be honored unless unfair or unreasonable. Therefore, the Court explained that courts will normally reject arguments that the chosen forum is unfair or inconvenient for a party without extensive analysis of factors relating to convenience. In the end, the forum selection clause was enforced and the California state court action against the employee was dismissed.

Richtek reiterates the importance of selecting a forum where the law is favorable to the employer. One key consideration is that there may be numerous types of litigation that may arise under this agreement and all of those need to be considered – especially statute of limitations.