Chebotnikov v. LimoLink, Inc.: a Cautionary Tale Concerning the Use of Forum-Selection Clauses
At the end of last year, a federal court in Massachusetts found that a forum selection clause in an Iowa company’s standard form service-provider agreement did not apply to claims asserted under the Fair Labor Standards Act (FLSA) and the Massachusetts Wage Act (Wage Act). The decision in Chebotnikov v. LimoLink, Inc., therefore compelled the company to litigate in a distant forum and in doing so, taught practitioners and other interested parties some important lessons about forum-selection clauses.
A Brief Primer on Forum-Selection Clauses
Forum-selection clauses are regularly included in commercial and employment contracts. These clauses allow companies to have some control over the jurisdiction in which they litigate—providing companies with a “home court” advantage and thereby cutting down the travel expenses and disruption inherent to litigation in a distant forum. However, these benefits are defeated if a forum-selection is stricken down, as it was in the LimoLink case.
The LimoLink Decision
LimoLink, Inc., the defendant in LimoLink, brokered chauffeur services through individuals it classified as independent contractors. Plaintiffs in the case are limousine drivers who provide services for the company. The Plaintiffs initiated a putative class action in federal court in Massachusetts, alleging violations of the FLSA and Wage Act stemming from (among other things): (1) misclassification of drivers as independent contractors; (2) failure to pay overtime; and (3) failure to distribute gratuities. Limolink moved to dismiss these claims, or in the alternative, to transfer the case to a federal court in Iowa based on the forum selection clause in the service-provider contracts it had entered into with the plaintiffs. The court denied this motion.
The LimoLink court first looked to language of the forum selection clause at issue, honing in on the following language: “(i)f a dispute arises under the terms of this Agreement . . . .” The court reasoned that the “arising under” language, similar to language such as “arising out of” or “arising from” should be construed narrowly to disputes “sourced in the terms of the agreement.” Further, the court reasoned that because the plaintiffs’ FLSA claims were not dependent on any of the terms of the service-provider agreements, they were not subject to the forum-selection clause. The Court reasoned that the analysis concerning the FLSA claims applied equally to the Wage Act claims.
Implications
- Courts may not simply rubber-stamp forum-selection clauses. Instead, some courts will scrutinize the language of these clauses to determine if claims at issue are covered.
- Drafters who intend forum-selection clauses to apply to FLSA or Wage Act claims or other employment-based claims, which draw their essence (according to LimoLink) beyond the controlling contract, need to draft carefully. The LimoLink court indicated that terms like “arising under”, “arising out of”, or “arising from” will not encompass FLSA or Wage Act claims. The court fell short of explaining what type of language would suffice to cover such claims, however, it suggested in dicta that it would construe language such as “with reference to,” “relating to,” or “in connection with” more broadly.
- While it is unclear if this is a developing trend, both inside and outside counsel (particularly those advising companies doing business in Massachusetts) should take a careful look at the forum-selection clauses in their contracts to ensure that they are drafted in a manner which will provide the intended benefits.
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