2nd Circuit Upholds Contractual Choice-of-Law Provision, Affirms Summary Judgment for GE

August 19, 2011

The U.S. Court of Appeals for the Second Circuit affirmed summary judgment in favor of Firm client General Electric International, Inc. (“GEII”), bringing to a close a wrongful death and survival action brought against the company by the survivors of a GEII employee who died in a workplace accident in Israel.  See McPhee v. General Electric International, Inc., No. 10-3250-cv, 2011 WL 3630117.  The ruling came shortly following oral argument.

The appeal revolved around the enforceability of a choice-of-law provision contained within a standard employment contract signed by the decedent, which dictated that New York law would govern “any dispute” between the parties, including one “arising out of the employment relationship.”  The District Court enforced the choice-of-law provision and, in doing so, held that the plaintiff’s claims against GEII were barred by the exclusive remedy provisions of New York’s workers’ compensation law.

On appeal, the plaintiff argued that despite its broad language, the choice-of-law provision did not reach extra-contractual tort claims and, furthermore, that it was unenforceable because neither the parties nor the transaction(s) between them had sufficient contacts with the state of New York.  In the absence of an applicable/enforceable choice-of-law provision, the plaintiff argued that Israeli law would control the outcome of the case (as the situs of the accident).

The Second Circuit (1) summarily rejected the plaintiff’s argument that the employment agreement’s choice-of-law provision could not cover an extra-contractual, wrongful death and survival action, and (2) held that there were sufficient contacts with the state of New York to uphold the choice-of-law provision under New York’s “reasonable relationship” standard.  As the court stated:

[The plaintiff’s] first argument is unavailing because the language of the agreement is sufficiently broad to encompass a wrongful death action arising from an employee’s death on the job. . . .

As for [the plaintiff’s] second argument, we conclude that the district court, sitting in diversity, properly applied New York’s choice-of-law rules to determine whether the clause was enforceable. . . .  In New York, “the chosen law [must] bear[] a reasonable relationship to the parties or the transaction.” . . .  We affirm the district court’s judgment for substantially the reasons stated in its well-reasoned decision.  Namely, a “reasonable relationship” existed between New York and both the parties and the employment relationship because:  GEII had a substantial presence in New York; a GE unit coordinated [the decedent’s] deployment overseas through vendors in New York; paychecks to [the decedent] originated from New York; GEII’s parent company had a substantial connection to New York; and the parties selected New York as the forum to litigate this action.

Few cases have analyzed the enforceability of a choice-of-law provision contained within an international employment agreement, and so the District Court decision and the Second Circuit opinion affirming it are notable for that reason alone.  In addition, the decisions confirm that the “reasonable relationship” analysis applied to determine the enforceability of a choice-of-law provision is a flexible one that pays deference to the intent of the contracting parties.