July 31, 2015

"Irreconcilable Clash" of Jurisdictions

In Petter v EMC Europe Ltd [2015] EWHC 1498, the High Court considered whether to grant an injunction to stop non-compete proceedings in the U.S.

James Petter was a U.K.-based senior employee of the U.K. subsidiary of a U.S. company. As part of his compensation package, he was awarded restricted stock units (RSU) under the U.S. parent’s plan. The plan contained an exclusive Massachusetts jurisdiction and governing law clause. As such, when Petter breached a non-compete covenant in the plan, the U.S. parent brought proceedings against him in Massachusetts. Petter applied to the U.K. High Court for an anti-suit injunction to stop the U.S. proceedings.

The first issue to be determined was whether the High Court had jurisdiction to hear the matter in light of the exclusive jurisdiction clause in the plan. This required the High Court to consider whether the U.S. parent could be considered to be Petter’s employer. It found that although under U.K. employment law his employer was the U.K. company, given the close connection between the RSU awards and his employment, the U.S. company could be considered his employer for the purposes of this action. Due to the fact that under the EU regulations  governing disputes of this nature an employer can only sue EU-based employees in the state in which they are based, Petter could only be sued in the U.K. Therefore, the Court found that it had exclusive jurisdiction in this matter. The Court acknowledged that this gave rise to an “irreconcilable clash” of jurisdictions as the Massachusetts court had already accepted exclusive jurisdiction. Ultimately however, the High Court refused to grant the injunction primarily because (i) granting it would prevent the U.S. parent from pursuing the proceedings in the forum it had contractually agreed with Petter, and (ii) this was required in the interests of respect for the Massachusetts court.

Leave to appeal has been granted, and we will keep you updated on developments. In the meantime, U.S. employers with EU-based employees should consider carefully the possible legal implications of their incentive arrangements.

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