Employee share schemes and exclusive jurisdiction clauses

The Court of Appeal in England recently had to determine whether it had jurisdiction to consider a dispute over the terms of an employee share incentive scheme, despite the share incentive scheme being subject to Massachusetts law and exclusive jurisdiction.

27 August 2015

The Court of Appeal in England, in the case of Petter v EMC Europe Ltd and another, recently determined that it had jurisdiction to consider a dispute over the terms of an employee share incentive scheme, despite the share incentive scheme being subject to Massachusetts law and exclusive jurisdiction.

The Claimant was a former employee of a UK subsidiary of EMC (a US parent company).  He resigned to take up employment with a competitor.  EMC operated a share incentive scheme, under which stock had recently been issued to the Claimant, and EMC initiated legal proceedings after his resignation to try and rescind those recent awards to the Claimant.  The share incentive scheme was subject to Massachusetts law and exclusive jurisdiction, and so EMC initiated legal proceedings in Massachusetts accordingly.

The Claimant, based in the UK, sought to challenge this in the UK courts, seeking, amongst other things, an interim injunction to prevent the legal proceedings in Massachusetts from going ahead.  EMC meanwhile sought to challenge the jurisdiction of the UK courts, in light of the exclusive jurisdiction clause in favour of the courts of Massachusetts.

The Court of Appeal ultimately determined that it did have jurisdiction to consider the dispute relating to the share incentive scheme, and granted an injunction preventing the proceedings in the Massachusetts courts from going ahead.  The basis for this decision was provisions contained in Articles 20-23 of the Recast Brussels Regulation, which sets out rules relating to contractual disputes concerning employees that are domiciled in an EU member state.  Articles 20-23 provide that where there is a dispute between an employer and employee relating to the individual’s contract of employment, the employer may only bring proceedings against the employee in the courts of the member state where the employee is domiciled.  If the employee is bringing the action against the employer, he/she has a choice of where to sue, and can bring the proceedings in his/her own member state, regardless of the domicile of the employer.  These provisions cannot be contracted out of and so would trump any exclusive jurisdiction clause in a contract of employment.

Interestingly, in determining this case, the Court of Appeal opted to give a wide interpretation to Articles 20-23 (which are ultimately for the purpose of protecting employees as the weaker party), and so construed the term “employer” to include EMC (which was actually the employer’s parent company) and the term “contract of employment” to include the share incentive scheme.  On that basis, whilst this technically wasn’t a dispute between employer and employee, about a contract of employment, the Court of Appeal considered that the Recast Brussels Regulation nevertheless gave the UK courts jurisdiction.

It should be noted that the Recast Brussels Regulation is only concerned with which courts have jurisdiction to hear a claim.  It doesn’t affect choice of law, which can be freely determined by the contract, in so far as it relates to contractual matters.  In this case, therefore, the UK courts had jurisdiction, but would still have to apply Massachusetts law to determine the contractual dispute.  Further, the Recast Brussels Regulation concerns jurisdiction to hear contractual disputes only, and not statutory claims under UK employment law (i.e. unfair dismissal), with jurisdiction over statutory disputes being subject to different rules.

This decision is of relevance to international employers who have employees based in EU member states, but who may have their contracts of employment, or share incentive or other schemes, governed by the law and, on their face, subject to the exclusive jurisdiction of the Courts, a country of the Company’s choosing.  This decision could affect an EU-based employer with employees in other member states, or a non-EU based employer with employees in any member state.  Employers in this situation need to know that regardless of what jurisdiction is chosen in the “employment contract”, the Courts of the land in which the employee makes his home will still have jurisdiction should a contractual dispute ensue (albeit applying the laws of the country as determined by the contract).