The Fifth Circuit unanimously rejected a Texas-based financial institution’s argument that Texas’ applied Selection Clause automatically subsumed Choice-of-Contract because allowing such an application would violate Oklahoma’s public policy in favoring worker’s right to earn a living.
The is noteworthy because it contrasts the two state’s competing viewpoints of worker’s rights. It also displays the Fifth Circuit’s lively writing style.
Prosperity Bank entered into a contract with Tulsa-based F&M Bank and Trust Company under which both companies would merge. The terms of the contract provided that Texas law would apply.
The Merger
Prosperity bank favored a quick merging of the companies and also sought the employment of thirty of the F&M bankers whom the former considered essential for the well being of the merger. These bankers were given a non-compete clause to sign as a condition of their employment that would apply within a 50 mile radius of Prosperity/F&M.
One Issue of Many
Multiple issues were debated, but the Fifth Circuit found that the contract terms should not stand because they stood to contravene Oklahoma’s “fundamental policy” interest in invalidating non-competes. The court, earlier in its opinion did acknowledge that the Texas Supreme Court reiterated its fondness in Exxon Mobil v. Drennen III. for the “party autonomy rule” which allows parties to agree to be governed by the laws of another state.
The Court’s opinion is an educational read that discusses legal issues beyond the enforceability of non-compete clauses. It’s a recommended read.
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