Where the agreement’s choice of law provision applied North Carolina law, the provision would be followed even though the employee worked (and his alleged bad acts took place) exclusively in Illinois. Elior v. Thomas, 2024 NCBC 27 (J. Earp).   Because the last act creating the agreement occurred in North Carolina, North Carolina law would control even if the choice of law provision were unenforceable.

Located and working exclusively in Illinois, Defendant entered into an employment agreement (“Agreement”) with Plaintiff to become its business development director in August 2021. The Agreement contained a non-solicitation provision which precluded Defendant from soliciting Plaintiff’s customers and employees during Defendant’s employment and for 24 months thereafter. Such a provision is unenforceable under Illinois law until an employee has worked for a company for at least two (2) years. (Opinion, ¶38). When accepting the job offer and while in Illinois, Defendant electronically signed the Agreement and sent it to Plaintiff’s CEO, who then countersigned the Agreement while at the company’s North Carolina headquarters. In October 2022, Defendant resigned his employment with Plaintiff and began to work for Plaintiff’s competitor. Plaintiff thereafter lost several customer contracts, allegedly as a result of Defendant’s successful solicitation efforts. Plaintiff filed suit, alleging Defendant breached the Agreement’s non-solicitation provision. Defendant filed a motion to dismiss, contending that Illinois’ public policy prevented the non-solicitation provision from being enforced, notwithstanding the Agreement’s North Carolina choice of law provision.

The Business Court disagreed. Recognizing that North Carolina follows the Second Restatement of Conflicts of Laws, the Business Court held that North Carolina will enforce an agreement’s choice of law provision unless the law of the chosen state violates the public policy of the “laws of the state otherwise applicable.” (Opinion, ¶40).  But because the last act creating the Agreement (i.e., the CEO’s signing of the Agreement) occurred in North Carolina, the Business Court held that the “laws of the state otherwise applicable” were the laws of North Carolina (not Illinois). Thus, even if there were no choice of law provision, North Carolina law would still apply.  As a result, the Business Court denied that portion of Defendant’s motion which contended the Agreement was unenforceable because it violated Illinois’ public policy.

Based upon this decision, a company which uses agreements containing choice of law provisions would be well served to ensure that it is the last to sign any such agreement to ensure enforcement of the choice of law provision.

Additional Legal Points: While a written restrictive covenant entered into after the start of employment must be accompanied by consideration, covenants not to compete that are a part of verbal employment agreements are considered to be founded on valuable consideration.  (Opinion, ¶49).