Exclusive jurisdiction clauses only work for disputes already in existence

The Court of Appeal has ruled an employer can only rely on an exclusive jurisdiction clause for issues in dispute at the time of signing (Merinson v Yukos International UK BV). You often see these clauses in settlement agreements when an employee leaves employment.  They set out which country’s courts can determine disputes. This case makes it clear that employers will only be able to rely on an exclusive jurisdiction clause if the dispute already exists at the date the agreement is signed. Otherwise, they will have to sue the employee in the country where the employee is domiciled.

Which courts can hear employment contract disputes?

For employment contract disputes, an employer can normally only sue an employee in the courts where the employee is domiciled. However, the parties can agree to another EU member state court hearing the dispute if they agree this after the dispute has arisen. 

There has been no previous case law on what “after the dispute has arisen” means. 

What agreement was settled in Dutch court?

Mr Merinson was employed by Yukos and was based in the Netherlands. His employment contract was subject to Dutch law and the contract stated that the Dutch courts had exclusive jurisdiction to decide disputes. 

A dispute arose and Mr Merinson issued proceedings against Yukos in the Dutch courts. The parties entered into a settlement agreement in September 2016 which provided for termination of his employment. Both parties waived existing and future claims. The agreement was subject to Dutch law and jurisdiction.

What happened when Yukos sued Mr Merinson in English courts?

In May 2017, when Mr Merinson was domiciled in the UK, Yukos issued proceedings in the English High Court, alleging he had received kickbacks from financial institutions. Yukos claimed damages for breach of his employment contract.  It also sought a declaration that the Dutch settlement agreement did not prevent the damages claim. 

What did the High Court rule in this case?  

Mr Merinson argued the English courts did not have jurisdiction to decide the claim because the Dutch settlement agreement gave the Dutch courts exclusive jurisdiction. 

The High Court disagreed. It ruled that the claims had not arisen at the date the parties signed the settlement agreement. The exclusive jurisdiction clause therefore did not apply and the English courts could hear the claim. 

The Claimant appealed to the Court of Appeal. 

What was the decision of the Court of Appeal?

The Court of Appeal agreed with the High Court. The settlement agreement had not been “entered into after the dispute had arisen”.  A dispute will only have arisen if:

1. The parties disagree on a specific point and
2. Legal proceedings are imminent or contemplated

These criteria were not met in this case. 

Parties can only enter into a jurisdiction agreement in relation to an actual dispute, not merely a potential dispute. In this case, there had been no direct communication between the parties about alleged receipt of kickbacks when they signed the Dutch settlement agreement. Even if Yukos had suspected anything relating to the kickbacks, this was irrelevant as they had not communicated it to Mr Yukos. Therefore, the English courts could hear the case.

What are the long term implications of Merinson vs Yukos?

Employers often draft settlement agreements to cover both actual and potential disputes. This decision sends a warning that they will only be able to rely on an exclusive jurisdiction clause in respect of a dispute which already exists at the date the settlement agreement is signed.  Otherwise, regardless of the wording in the agreement, they will have to sue the employee in the courts where the employee is domiciled.