Skip to main content

A Choice of Law Provision in a Non Compete Agreement Does Not Always Control


Cabela’s LLC v. Highby, et al - Third Circuit Court of Appeals


Facts:  (Note, in this short five page opinion, the Court of Appeals did not provide a lot in the way of facts.)

In short, Cabela’s LLC (“Cabela’s”) is a registered Delaware entity.  Cabela’s sought a temporary injunction to enjoin Matthew Highby, Molly Highby, and Highby Outdoors, LLC (“the Highbys”) from alleged violations of a non compete and non solicitation agreement.   (There was a non compete and non solicitation agreement in place which included a Delaware choice of law provision.  However, the Highbys were located in Nebraska and sought to have Nebraska law apply.  Nebraska non compete laws are stricter than Delaware’s.)  The district court denied the request from Cabela’s and Cabela’s appealed to the Third Circuit Court of Appeals.

Holding:  Under Nebraska law, a non compete may restrain competition by improper and unfair methods, but may not contain ordinary competition.  Delaware law differs, however, by allowing a non compete to prohibit ordinary competition so long as it is not oppressive to an employee.  Cabela’s argued that the Restatement (Second) of Conflict of Laws stipulated that a choice of law provision should control in any conflict of laws dispute.  However, the Third Circuit Court of Appeals pointed out that the Restatement only requires a court to presume the contracting parties and/or relevant transactions have a significant material relationship with Delaware.  The Restatement does not require a court to presume that no other forum has a significant and more material interest in its law being applied.

The Court of Appeals held that the district court correctly identified a conflict of laws between Delaware’s policy in upholding the freedom of contract and Nebraska’s fundamental policy of not enforcing contracts that prohibit ordinary competition.  In this case, the non competes were executed in Nebraska between Nebraska citizens, the alleged breaches of the agreements occurred in Nebraska, and Cabela’s claims were partially based upon Nebraska law.  Consequently, the Court of Appeals recognized that Nebraska had a materially greater interest in applying its laws to the dispute.

The non competes themselves were therefore found to constrain ordinary competition because they prohibited the Highbys from using the general skills and training that they acquired while employed at Cabela’s in any other retail space that sold hunting, fishing, and other outdoor products with a reach outside Nebraska.

Judgment:  The Third Circuit Court of Appeals affirmed the denial of a temporary injunction sought by Cabela’s on the grounds that a Delaware choice of law provision in a non compete agreement did not apply as it was contrary to a fundamental policy of Nebraska.

The Takeaway:  This case serves as a good reminder that just because a choice of law provision is included in a contract/agreement/non compete/etc., that does not definitively mean that state’s law will apply.  As the Third Circuit Court of Appeals spelled out here, while the non compete would be valid under Delaware law, when looking at the facts, Nebraska law should control.  This case should provide employers and employees alike with a reminder that the enforceability of a contract or provision, while lawful in some states or jurisdictions, will not necessarily produce the same result elsewhere.

Majority Opinion Judge:  Judge McKee

Date:  April 14, 2020

Opinion:  http://www2.ca3.uscourts.gov/opinarch/191423np.pdf


Comments

Post a Comment

Popular posts from this blog

NLRB: Discussion Among Employees About Tip Pooling is Protected Concerted Activity

  This Advice Memorandum from the National Labor Relations Board’s Associate General Counsel, Jayme Sophir, addressed whether employees which discussed and complained about tip pooling at work constituted protected concerted activity. In relevant part, an employer in New York operated a chain of steakhouses.  While tip pooling was in place at these steakhouses, some of the employees objected to it on the grounds that it was not transparent and improperly divided tips among the workers.  Employees were told not to complain or talk to each other about the tip pool and were told that doing so would endanger their jobs.  Despite the employer later attempting to provide some clarity as to how the tips were being divided, rancor still existed among some employees.  At one point, the employees were told by a general manager that some employees that had been talking about the tip pool were “cleared out” and the employer would continue to do so. In the Advice Memorandum, it was noted that emplo
Post a Comment
Read more

What I’ve Been Reading This Week

A few years ago, I remember when the “Fight for $15” movement was taking off around the country.  Lo and behold, it appears that a $15/hour minimum wage is not the stopping point, which should be no surprise.  As the below article notes, New York is aggressively moving to ramp up hourly wage rates even higher.  While all the  below articles are worth a read, I called particular attention to that one. As always, below are a couple article that caught my eye this week. Disney World Workers Reject Latest Contract Offer Late last week, it was announced that workers at Disney World had rejected the most recent contract offer from the company, calling on their employer to do better.  As Brooks Barnes at The New York Times writes, the unions that represent about 32,000 workers at Disney World reported their members resoundingly rejected the 5 year contract offer which would have seen workers receive a 10% raise and retroactive increased back pay.  While Disney’s offer would have increased pa
Post a Comment
Read more

Utah Non-Compete Bill Falters in House

Last month, a non-compete bill sponsored by Representative Brian Greene (Republican from Pleasant Grove) & up for vote in the Utah House failed to make it through the Legislature.  The bill sought to ban enforcement of non-competes if they came after a worker was already employed, given no compensation (such as a bonus or promotion) for signing the non-compete, and laid off within six months.  However, by a 22 - 49 vote, the bill was resoundingly defeated after some business groups lobbied to kill the non-compete bill.  One group in particular, The Free Enterprise Utah coalition, argued that the Utah State Legislature should hold off on any changes to non compete laws in the state until a survey about non competes was done among Utah businesses.  Representative Greene had countered this claim and argued that a survey was not needed to show that the current non compete laws in the states allowed many businesses, including some small high tech companies in the state, to per
Post a Comment
Read more