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The High Court refuses to grant an anti-suit injunction to stop US proceedings against an employee who lived and worked exclusively in England

The High Court refuses to grant an anti-suit injunction to stop US proceedings against an employee who lived and worked exclusively in England

Global corporations frequently incentivise their key senior employees be offering equity shares in their company.  These arrangements – often in the form of employee share options – are typically tied to restrictions on the executive’s behaviour (i.e. good leaver/bad leaver provisions).

The incentive arrangements are usually documented separately to the individual’s contract of employment, with the shares often being issued by a company other than the employing entity (e.g. by the global parent company).  Difficulties can arise when the incentive documents contain jurisdictional clauses which are at odds with the underlying employment contract and the locality of the individual’s work, particularly if they are working in the EU.

These complex issues were considered in the recent case of Petter v EMC Europe Ltd where the High Court dismissed an application for an anti-suit injunction to prevent the proceedings continuing in the Massachusetts court, despite the English court having jurisdiction to hear the claim by virtue of the Recast Brussels Regulation.

A brief recap on the employment aspects of the Recast Brussels Regulation 

Section 5 of the Recast Brussels Regulation (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).

For further details on the Regulation please see our previous news alert here.

In a recent cross-border case, Petter -v- EMC Europe Ltd and another [2015] the High Court considered the application of the Regulation and whether to grant an anti-suit injunction preventing proceedings in the US.

A summary of Petter 

EMC Corporation is a Massachusetts corporation, headquartered in Massachusetts.  It has a number global subsidiaries including EMC Europe Limited (EMC Europe).

Mr Petter 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 Restricted Stock Unit (“RSU”) awards by EMC Corporation, the global parent company.  The RSU agreements incorporated a Stock Plan issued by EMC Corporation 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 to join a competitor there followed a dispute over the RSU awards granted to Mr Petter.  EMC Corporation alleged that Mr Petter was a bad leaver in accordance with the terms of the Stock Plan resulting in the rescission and cancellation of a number of these.

Whilst EMC Corporation advanced proceedings in the Massachusetts courts, Mr Petter argued that  because of the Regulation the Massachusetts courts’ exclusive jurisdiction clause had no effect and he could sue EMC Corporation in England and EMC Corporation were also required to sue him in England rather than in Massachusetts.

The High Court considered:

  1. Whether the English court has jurisdiction over Mr Petter’s claim against EMC Corporation; and
  2. Whether the court would grant an interim anti-suit injunction against EMC Corporation preventing further prosecution of Mr Petter in Massachusetts.

Did the English courts have jurisdiction to hear Mr Petter’s claim?

The question for the English court to address was “whether EMC Corporation was Mr Petter’s employer and whether his claim related to a contract of employment with that Corporation.”

The court ultimately found that they did have jurisdiction to hear Mr Petter’s claim under the Regulation.

The court felt bound by the decision of the Court of Appeal decision in Samengo-Turner. In Samengo-Turner a bonus agreement which was subject to New York law and operated by the parent company of an English employer was found to relate to and become part of the English claimants’ individual contracts of employment.  Whilst the wording of the relevant provisions in this case were not identical to those in Samengo-Turner, the court identified obvious parallels.

The court considered  that Mr Petter had a “good arguable case” that the terms of the RSU Agreement became part of his employment contract, despite, for example, an entire agreement clause and the fact that the award was no part of Mr Petter’s normal or expected compensation.  Factors which the court took into account to conclude that the RSU agreement was part of his contract, included (but were not limited to):

  • Mr Petter was selected to receive the awards because he was a key employee.
  • The Stock Plan was designed to reward/incentivise employees and represented a form of remuneration for work done.
  • An RSU award was dependent upon Mr Petter’s continued employment.
  • The RSU was expressly conditional upon Mr Petter’s agreement to and observance of terms set out in a document called “EMC’s Key Employee Agreement.” This Key Employee Agreement was incorporated in Mr Petter’s contract of employment with EMC Europe but was also incorporated in the RSU Agreement.
  • The RSU awards were substantial in light of the remuneration paid to Mr Petter by EMC Europe.

Mr Petter was therefore entitled to bring his claim against EMC Corporation in England under Article 21.1(b)(i) and Article 21.2 of the Regulation and EMC Corporation could only bring proceedings in England under Article 22.

The agreement between EMC Corporation and Mr Petter regarding the exclusive jurisdiction of the courts of Massachusetts had, according to the High Court, no legal force due to the Regulation and was therefore to be ignored.  The English court had exclusive jurisdiction, although it would apply the law of Massachusetts.  However, the difficulty for the High Court was that the courts of Massachusetts had already found the jurisdiction clause binding.  This decision caused difficulties for the High Court in terms of granting relief, which the court went on to consider next.

Would the English courts grant an anti-suit injunction?

The High Court then went on to consider whether they were bound by the decision in Samengo-Turner to grant an interim injunction to restrain the proceedings in the US.  In Samengo-Turner, the court granted an anti-suit injunction to restrain foreign proceedings so that the English employees’ statutory right to be sued in England could take effect.    However, in Petter, the High Court did not consider it was bound by this previous decision as injunctions are always discretionary and the requirement for an injunction must turn on the facts of each a particular case.

The Massachusetts court had already decided that they had jurisdiction to hear the claim so the High Court acknowledged that there was a clash between the courts in Massachusetts and the English court as to jurisdiction.  The High Court therefore had to take into account the consequences of granting or not granting an interim injunction in the context of this clash.

The High Court considered that the granting of an interim injunction (pending the determination of the dispute in the UK) would inbe final in its effect and would prevent EMC Corporation from pursuing its claim in Massachusetts in the forum chosen by the parties.

The High Court then considered where lay the balance of convenience.  If a declaratory judgment was given in England in favour of Mr Petter he would then need to obtain recognition of that judgment in Massachusetts (in the event that EMC Corporation did not recognise the decision of the English court). The Massachusetts court would consider that the English court had no jurisdiction to determine the rights under the Stock Plan and would therefore not recognise any judgment of the English court in relation to stock in a Massachusetts company (unless it submitted to the jurisdiction of the English courts, which seemed unlikely).  The High Court therefore assumed that EMC Corporation was likely to continue with its proceedings in Massachusetts and not play a part in the English court proceedings.  If proceedings continued in both courts, the losing party in each would be likely to resist enforcement in their other jurisdiction.

Whilst there had been a decision to grant a final anti-suit injunction in Samengo-Turner, the High Court considered that the requirements of comity did not allow such a solution in this case.  The Judge also thought that the academic criticism on the decision to grant an injunction in Samengo-Turner had “considerable force”.

The decision by the High Court that it had jurisdiction to hear the complaint because of the Regulation did not put EMC Corporation in breach of any contractual obligation, particularly where it had agreed to the law of Massachusetts. It was in fact Mr Petter who was in breach of contract, by pursuing the claim in an English court (although he was entitled to do so because of the Regulation).

Therefore, despite the English courts having jurisdiction to hear the claim, the High Court – in divergence to Samengo-Turner – declined to grant an anti-suit injunction on the following grounds:

  • Granting an anti-suit injunction is “essentially inimical” to the Regulation which would not allow anti-suit injunctions in the context of jurisdictional disputes between Member State Courts;
  • The parties had agreed to Massachusetts law;
  • The proceedings in Massachusetts were not vexatious or oppressive;
  • The requirement of comity meant that the decision of the court should be observed.
We understand that the case is to be appealed to the Court of Appeal later this month, so we will update you further.  In the meantime, multi-national employers should carefully consider the possible consequences of the jurisdictional provisions of their incentive and employment related documents, particularly where their employees work in the EU, and will no doubt assess their legal and tactical options in the light of this decision in the event of any related dispute with a UK or EU based employee.