A Tennessee Missions Agency’s Employment Contract Requires Employees’ Lawsuit to Be Resolved on Basis of Virginia Law

The goal of choice-of-law clauses in agreements is to have the most favorable state law apply to a transaction.

Key point A choice-of-law provision designates the state law that will govern a legal transaction.

A federal appeals court ruled that a "choice of law" provision in a missions agency's employment contract requiring all employment disputes to be adjudicated on the basis of Virginia law was enforceable and required a missionary couple's lawsuit in a Tennessee court asserting various employment claims had to be resolved on the basis of Virginia law.

In 2006, a married couple (the "plaintiffs") began investigating the possibility of becoming missionaries with the International Mission Board of the Southern Baptist Convention (IMB). In 2008, the couple accepted missionary positions in India. The couple sold their home and most possessions, and the wife resigned from her job of 17 years. At the time of their assignment, the plaintiffs signed an employment contract stating: "Once approved for service, your relationship to the IMB will be that of an 'at will' employee of a Virginia religious, non-profit corporation, with all aspects of that relationship originating in Virginia and controlled by Virginia law."

The plaintiffs worked in New Delhi from January 2009 until November 2010. In October 2010, the IMB terminated the couple's employment, purportedly because they were no longer needed. The couple sued the IMB, and the Southern Baptist Convention, in a federal district court in Tennessee, claiming that their employment was terminated after they informed their superiors of illegal practices in the construction of the office building in New Delhi. These practices included bribes, false documents to procure permits, and unsafe building practices. The plaintiffs' lawsuit alleged various theories of liability under Tennessee law, including breach of contract and retaliatory discharge. The plaintiffs claimed that the choice-of-law provision should be disregarded because the IMB did not execute the contract in good faith. The plaintiffs claimed that Tennessee law should govern the dispute based on Tennessee's adherence to the doctrine of lex loci contractus, a presumption that a contract is "to be governed by the law of the jurisdiction in which it was executed absent a contrary intent."

The district court unequivocally rejected the application of this doctrine to the plaintiffs' employment relationship with the IMB, based on the clearly expressed "choice of law" provision that made Virginia law controlling in all employment disputes between the parties. The plaintiffs appealed to a federal appeals court, claiming that lex loci contractus governs and requires the application of Tennessee law to the parties' dispute.

The district court determined that the choice-of-law provision stating that Virginia law governs the employment relationship between the plaintiffs and the IMB was valid and enforceable. Accordingly, it concluded that the plaintiffs' "common law claims filed under Tennessee law related to their employment are deficient as a matter of law."

The appeals court agreed with the IMB that the choice-of-law provision was enforceable, and required the plaintiffs to assert claims under Virginia law in the Tennessee courts.

What this means for churches

Choice-of-law clauses are common in commercial agreements. The goal is to have the most favorable state law apply to a transaction. They are rarely used by religious organizations, but in some cases they should be considered. To be enforceable, most courts have ruled that a choice-of-law provision must designate the laws of a state having some connection with the parties (e.g., the location of at least one party, or the place where the contract was executed or will be performed). Church leaders should discuss this potentially significant topic with an attorney when drafting employment agreements and other documents, to see if the laws of another state would be more favorable to the church, and if there are sufficient contacts to warrant the choice of another state's laws. Nollner v. Southern Baptist Convention, 628 Fed.Appx. 944 (6th Cir. 2015).

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