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The Court of Appeal grants anti-suit injunction to stop US proceedings against an English former employee

The Court of Appeal grants an anti-suit injunction to stop US proceedings against an English former employee

In our recent news alert of 10 July 2015, we reported on the High Court decision of Petter -v- EMC Europe Ltd & Anor [2015] EWHC 1498 (QB).  The case was appealed to the Court of Appeal which handed down its judgement this week in Petter -v- EMC Europe Ltd and Anor [2015] EWCA Civ 828.

At first instance, the High Court had refused to grant an anti-suit injunction to stop US proceedings against a former employee of EMC Europe, Mr Petter, who lived and worked exclusively in England.  The decision was made despite the English court having jurisdiction to hear the claim by virtue of Section 5 (Jurisdiction over individual contracts of employment) of the Brussels I (Recast) Regulation (1215/2012) (the “Regulation”), as Mr Petter was domiciled in England.

The Regulation

Section 5 of the Regulation governs “matters relating to individual contracts of employment” and in particular limits exclusive jurisdiction clauses in EU employment contracts.

Article 21.1(a)-(b) of Section 5 of the Regulation sets out that an employer domiciled in a Member State may be sued:

(a)  in the courts of the Member State where the employer is domiciled (i.e. has its statutory seat/registered office, central administration, principal place of business); or

(b)(i)  in another Member State where the employee habitually works; or

(b)(ii)  in the Member State where the business in which the employee is engaged is or was situated (if they do not habitually work in any one country).

Article 22 of that same Section states that an employer can only sue an employee in the courts of the Member State in which the employee is domiciled (although the employer can bring a counter-claim in the court where the employee’s original claim is made).

Unlike its predecessor, Brussels I, the Regulation extends the ability of an employee to litigate against non-EU employers in the court of a Member State, even if an employer has no EU presence (Article 21.2).

Please see our recent news alert here for further details on the previous High Court decision in this case and the Regulation.

The Case to Date

To recap, EMC Corporation (“EMC”), a Massachusetts-based corporation, had a number of global subsidiaries including EMC Europe Limited (“EMC Europe”).  Mr Petter, a key senior employee, was employed by EMC Europe and habitually carried out his work in England.  Whilst his contract of employment was with EMC Europe, he was granted stock awards by EMC, the global parent company.  The stock was distributed under a Stock Plan, which contained an exclusive Massachusetts jurisdiction and governing law provision.  The awards represented a significant part of Mr Petter’s remuneration in any given year.

Following Mr Petter’s resignation from EMC Europe to join a competitor, a dispute over the awards granted to him arose.  EMC advanced proceedings in the Massachusetts courts seeking declarations that it was entitled under the terms of the Stock Plan and related agreements to rescind the most recent awards of stock to Mr Petter (it was their case that Mr Petter had engaged in “Detrimental Activity” within the meaning of the Stock Plan).  In response, Mr Petter started proceedings against EMC and EMC Europe in the English High Court seeking declarations that the restrictive covenants in his contract of employment were unenforceable (as being an unreasonable restraint of trade), the provisions under the Stock Plan used to rescind the awards were unenforceable and that he had not breached his contract of employment.  Mr Petter also sought an interim injunction prohibiting EMC from pursuing the proceedings against him in Massachusetts.  He argued that the Massachusetts courts exclusive jurisdiction clause had no effect because of Section 5 of the Regulation;  the Regulation entitled him to sue EMC in England and required EMC to sue him in England rather than in Massachusetts.

In May 2015, the High Court decided that they did have jurisdiction to hear Mr Petter’s claim by virtue of the Regulation, but declined to grant an anti-suit injunction (departing from the 2007 Court of Appeal decision in Samengo-Turner).

The Court of Appeal

Two appeals were heard before the Court of Appeal:

(1) EMC appealed against the decision on jurisdiction; and

(2) Mr Petter appealed against the refusal to grant an anti-suit injunction.

In summary, the Court of Appeal dismissed EMC’s appeal on jurisdiction and granted an anti-suit injunction, allowing Mr Petter’s appeal.

Jurisdiction

The Court of Appeal agreed with the High Court’s decision on jurisdiction. It was satisfied that the dispute between Mr Petter, EMC and EMC Europe “relates to his contract of employment” within the meaning of Article 20(1) of the Regulation (which in summary stated that in matters relating to individual contracts of employment jurisdiction shall be determined by this Section 5), for a number of reasons including, but not limited to:

  • the awards were intrinsically bound up with Mr Petter’s contract of employment;
  • they were made available to him as an senior employee and were a reward for past efforts and an incentive for future efforts;
  • they were “probably” viewed by EMC as a way of retaining highly valued employees; and
  • a dispute between Mr Petter and EMC over the terms of the stock is a dispute in which Mr Petter would be described as the weaker party and therefore entitled to the protection of Section 5 of the Regulation.

The Court of Appeal considered that this conclusion was reinforced by the decision in Samengo-Turner.  Moreover, the decision in Samengo-Turner is binding authority for the following proposition:

“that a company which provides benefits to employees of associated companies within the same group may be regarded as an employer for the purposes of the Regulation if it provides those benefits in order to reward and encourage those employees for the benefit of their immediate employer and the group as a whole” (Paragraph 21).

The Court of Appeal therefore disregarded the Massachusetts exclusive jurisdiction clause and assumed jurisdiction over EMC in relation to the issues raised by Mr Petter’s claim.

The Anti-Suit Injunction

In the High Court, Cooke J had previously considered that he was not bound by Samengo-Turner (because his decision involved the exercise of discretion) and so declined to grant an anti-suit injunction.

The three Court of Appeal judges did not agree and did not see how this case could be distinguished from Samengo-Turner (although there was some respectful disagreement between Vos LJ and Sale LJ on the conclusions reached by the court in Samengo-Turner).

The High Court had not been entitled to depart from the approach in Samengo-Turner on the ground of comity (a legal doctrine, where, as a matter of courtesy (as opposed to law) courts recognise and enforce each others’ legal decisions).  The Court of Appeal acknowledged that whilst the grant of an injunction is a matter of discretion, this must be exercised in accordance with established principles and in Samengo-Turner the principle that emerges is that:

“in a case falling within Section 5 of the Regulation an anti-suit injunction should ordinarily be granted to restrain an employer from bringing proceedings outside the Member States in order to protect the employee’s rights”(Paragraph 31).

The fact that a Member State could not grant an anti-suit injunction to restrain proceedings in the court of another Member State was not considered to be significant (as legislation regulates the exercise of jurisdiction within the EU and the need for Member States to implement it properly).

We understand that permission to appeal to the Supreme Court has been declined.

Summary

The Court of Appeal decision confirms the Samengo-Turner position that multi-national employers may face an anti-suit injunction when trying to enforce non-EU court exclusive jurisdiction provisions in incentive and employment related documents pertaining to EU employees.

Corporations should ensure that the drafting of covenants and other provisions are reviewed to ensure enforceability not just under US law, if relevant, but also in the country or countries where the employee will be working, particularly if they will be working in the EU.