Weight of 1,000 (down) feathers: 6th Circuit enforces Ohio choice-of-law provision

When drafting and executing restrictive covenant agreements, employers must consider many factors, especially their enforceability in different jurisdictions and whether the choice-of-law provision is appropriate to the specific employee’s situation. The factors’ importance was on display in a recent decision by the U.S. 6th Circuit Court of Appeals (which covers Ohio employers).

Facts

Down-Lite International, Inc.—a corporation organized under Ohio law—designs, makes, and sells feather-filled products. It employed Chad Altbaier, a California resident, in a variety of capacities for nearly two decades.

In 2019, Altbaier resigned from Down-Lite, intending to partner with the company to sell its down insulation as an independent sales representative. Soon after his resignation, however, the relationship soured.

In July 2019, Down-Lite filed a lawsuit in Ohio seeking to enforce a noncompete covenant contained in a 2013 shareholder agreement and prevent Altbaier from soliciting the company’s customers and employees for two years. The agreement’s choice-of-law provision indicated it "shall be governed and construed in accordance with Section 1701.591 of the Ohio General Corporation law and all other laws of the State of Ohio."

Despite the agreement’s choice of Ohio, Altbaier argued California law should apply. Notably, California courts hold enforcing covenants not to compete is against the state’s public policy. Thus, California law prohibits noncompetes in most circumstances and probably would bar enforcement of the covenants in Down-Lite’s shareholder agreement.