The Effectiveness of a Non-Compete that is “Subject” to an Employment Agreement: Why Legalese Isn’t Always a Waste of Time

Imagine, as I was asked recently, that you were an ex-employee of a company and attempting to determine whether you would prevail in a certain lawsuit. The situation involves a non-competition agreement (non-compete) you signed with a company, and you do not believe you should be bound by it.  The company is suing you to enforce it. The non-compete says it is “subject to an employment agreement to be completed within 30 days.” The employment agreement, in fact, was never signed.

Is the non-compete binding? In other words, is the enforceability of the non-compete subject to the existence of an executed employment agreement or are the provisions simply subject to contrary language in an employment agreement, if completed and signed within the 30-day period? Obviously, these are two conflicting interpretations of the same language, and either could be valid. A separate question would arise if an employment agreement was in fact executed, but it was done so more than 30 days after the employment agreement.

[Note: This post was written while I was a practicing attorney running a solo law practice. Since April 2015, I have been working with attorney, executive and entrepreneur clients as a career coach and writer, and I am not currently available for legal engagements.]

At the outset, there are many preliminary questions to ask before considering the potential outcome of the case, including the following:

–       In which jurisdiction was the agreement signed, and are non-competition agreements binding in the jurisdiction?

–       Was there sufficient consideration to create an enforceable agreement?

–       Is the agreement otherwise enforceable as drafted?

–       Does any other language in the agreement itself contradict the language above? For example, is there an “integration” clause that says the agreement contains the entire understanding of the parties with respect to the subject matter of the agreement?

–       What interest is the company trying to protect (e.g., confidential information, competing employment, customer lists or another restriction)

–       In what circumstance did this arise, i.e., were you fired or did you leave voluntarily?

–       Have other cases been decided in the relevant court(s) that deal with the same or a similar point?

–       Do we know anything else about the intent of the parties (you and the company) when the non-compete was signed?

–       Do other employees have non-competes with the company and are these generally enforced if violated? Do you know (or can you find out) if they contain similar language?

The questions above and others would help determine your likelihood of prevailing in the lawsuit.  Assuming the plain language of the agreement and the limited facts above, I believe you would have a strong argument that your non-compete is not an enforceable agreement, because the formation of the contract was subject to a condition that was never fulfilled, i.e., the execution of an employment agreement within 30 days. The company would counter that you were employed nonetheless, and that “subject to” language is therefore superfluous.

If this case were actually at trial, you would need to consult further with a competent attorney to determine what goals the company had in bringing the lawsuit against you and what strategy should be employed to attempt to diffuse, fight or settle the suit.

Of course, there is another crucial lesson to take away from the above scenario. When you draft a contract, you have to get the language right, and you have to do what you say you’ll do. In other words, good drafting and attentive follow-up, by you and/or your lawyer, are essential.

Lawyers often get a bad rap for focusing on “legalese” and “fine points”. However, thousands and sometimes millions of dollars are spent trying to interpret what people meant when they wrote something, and which party has the better argument that its interpretation of a clause is the correct one. While lawyers cannot foresee every situation that may arise and how to draft a “bulletproof” agreement that will withstand any dispute, experienced ones can steer you out of circumstances in which off-the-shelf or borrowed contract language turns out to be penny wise and pound foolish. Don’t assume that language you found on the Internet or that “worked” for (or was never tested by) your brother-in-law’s business in another state five years ago will work for you today.  Even language recommended by your attorney to use with a previous employer may not fit your current employment arrangement, since the circumstances may be different

Finally, if your lawyer was paying careful attention when the above (hypothetical) non-compete was drafted, you would not be in this scenario. The non-compete would have specified whether a signed employment agreement was a condition precedent to an enforceable non-compete or simply governed in the case of conflicting provisions. In addition, the employment agreement referenced would have been signed and kept on file, or the non-compete would have been amended to delete or change the reference if the employment agreement was not signed in the requisite time period.

None of the information posted on this site constitutes legal advice or forms an attorney-client relationship. This is a public forum. Please do not post confidential or fact-specific information regarding your legal questions on this site.

4 Comments

  1. This is a worthwhile discussion when creating restrictive covenants. It’s all that much more critical to be careful in drafting these covenants given the additional judicial scrutiny that they have more recently been subject to.

    Like

  2. Appreciating the commitment you put into your website and in depth information you present.
    It’s nice to come across a blog every once in a while that isn’t the same unwanted rehashed information.
    Wonderful read! I’ve saved your site and I’m adding your RSS feeds to my Google account.

    Like

Comments are closed.