Non Compete Agreements

Forum Selection Clause Unenforceable in North Dakota for Purposes of Enforcing Non-Compete Agreement

North Dakota law has long prohibited non-compete agreements in employment contracts. See N.D.C.C. §9-08-06. Companies that employ North Dakota residents have tried to work around this law by, for example, for out-of-state companies, entering employment contracts applying the laws of their home state, and requiring that disputes be handled in the home-state courts. A recent decision of the North Dakota Supreme Court undermines these “forum-selection clauses” to the extent they could be used undermine North Dakota’s public policy against non-compete agreements. See Osborne v. Brown & Saenger, Inc., 2017 ND 288 (Dec. 7, 2017) (“Osborne”).

In Osborne, the employer is a South Dakota company and the employee, Osborne, worked out of its Fargo, ND office. Osborne was terminated and asserted claims against the employer in North Dakota including a request that the Court invalidate the non-compete provision in the employment agreement. The employer brought a separate action in South Dakota (where non-compete agreements are enforceable) and a motion in North Dakota to dismiss Osborne’s case based on the forum-selection clause in the employment agreement. The District Court in Fargo granted the motion to dismiss, but the Supreme Court reversed that decision.

In its ruling, the Supreme Court summed up its position as follows:

Simply put, one may not contract for application of another state’s law or forum if the result is to allow enforcement of a non-compete agreement in violation of North Dakota’s longstanding and strong public policy against non-compete agreements.

Based on the above, it is reasonable to conclude that other provisions in the employment agreement that bear enforcement may also be relegated to North Dakota Courts rather than the preferred forum of the out-of-state employer.

For this reason, employers in North Dakota must carefully consider the risks of including non-compete provisions against their interest in having disputes resolved in their home forum.