Employment Law Daily Texas court, Texas law govern NJ Mary Kay workers’ misclassification, forced purchases claims
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Monday, October 23, 2017

Texas court, Texas law govern NJ Mary Kay workers’ misclassification, forced purchases claims

By Lisa Milam-Perez, J.D.

A New Jersey-based Mary Kay “independent sales consultant” could not proceed in the federal court in New Jersey with her putative class action suit alleging that she and her fellow New Jersey consultants had been misclassified as independent contractors under the New Jersey Wage Payment Law (NJWPL). The plaintiff’s two written consultant agreements with the company contained a forum selection clause mandating Texas state court as the proper venue to bring suit. The agreements also included choice-of-law provisions stating that Texas law would apply. The plaintiff didn’t sufficiently challenge that there was another sufficient forum available to her, and she failed to articulate any public interest factors that would favor litigating her case in New Jersey over a Texas state court. Because she failed to make her case, the appeals court affirmed the lower court’s order granting Mary Kay’s motion to dismiss her claims on forum non conveniens grounds (Collins v. Mary Kay, Inc., October 19, 2017, Restrepo, L.).

The plaintiff had worked as a sales consultant and later, a sales director for the cosmetics company. She filed a proposed class action in federal court in New Jersey alleging that the New Jersey-based beauty consultants were classified as independent contractors, but were in fact Mary Kay employees and had been wrongly forced to buy the company’s products, uniforms, and marketing materials as a condition of employment—in violation of the NJWPL. However, the plaintiff’s two contracts with the company included enforceable forum selection clauses providing that Texas was the venue for any claims against the company. The agreements also contained a choice-of-law clause that specified Texas law would apply to disputes. Seeing no basis for litigating the case in New Jersey, the district court granted Mary Kay’s motion to dismiss the action.

Choice-of-law on forum selection clause interpretation. On appeal, the plaintiff argued that the lower court had erred when granting the motion because it had relied on federal common law; in her view, New Jersey law should have governed the analysis. But the Third Circuit said that “[a]pplying federal law to questions of enforceability of forum selection clauses comports with” settled circuit law. Contract interpretation was a separate matter than contract enforcement, the appeals court noted, and the court saw no reason—under circuit precedent, persuasive authority from the Second and Fifth Circuits, or the Erie doctrine itself—to apply federal common law to interpret the forum selection clauses in the agreements here. Accordingly, it applied state contract law to assess the scope of the clauses to decide whether they encompassed the plaintiff’s NJWPL claim.

As for which state’s contract law applies to the interpretation, the court looked to New Jersey law, the state in which the district court sits (as the choice-of-law rules of the forum state apply in diversity cases). And under New Jersey law, the parties’ contracted-for choice of law controls the interpretation of the forum selection clause unless the choice-of-law clause itself is unenforceable. The plaintiff failed to show that the agreements’ clause was unenforceable—that New Jersey had a “materially greater interest” in applying its own contract law to the interpretation of the forum selection clause here. Thus, per their agreement, Texas choice of law principles applied to the interpretation of the forum selection clause.

Forum selection clause reached NJWPL claim. The plaintiff urged that her NJWPL claim fell outside the reach of the broadly worded forum selection clause in the parties’ consultant agreements because her claim was not one for breach of contract. But her claim nonetheless “related to” the consultant agreement, as she conceded, and she cited no authority to support her contention that Texas law would exclude application of the forum selection clause “of comparable breadth to the clauses here” to her wage claim. Thus, under Texas contract law, the agreements’ forum selection clauses encompassed her wage claim, the Third Circuit found.

Her claim “relates to” her working relationship with Mary Kay, and therefore implicated the contents of the consulting agreements. Those agreements established the nature of the plaintiff’s relationship with Mary Kay and the terms and conditions of that relationship. While the agreements themselves were not determinative of whether the plaintiff qualified as an “employee” under the NJWPL, and thus would be afforded wage law protection, the agreements would nonetheless be relevant to understanding the contours of the parties’ relationship. The agreements also addressed the mandatory purchases she had to make from the company, which were the key underlying issue here.

She didn’t make her case. “We are mindful of the predicament that could arise for a plaintiff who (a) performs work in her home state for a company headquartered in another state, (b) seeks the substantive protections guaranteed by her home state’s wage payment law; and (c) is subject to forum selection and choice-of-law clauses in her employment agreement that point outside of her home state,” the Third Circuit wrote. “But it is incumbent on plaintiffs in those situations to challenge the enforceability of the forum selection clauses and to outline for the lower court exactly how they stand to be deprived of the wage payment protections they are otherwise guaranteed.” In this case, the plaintiff failed to do so. As such, Texas law controlled the interpretation of the parties’ forum selection clause, and under Texas law, her suit belonged in a Texas state court.

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