4.05.2013

Seemingly Harmless Provision in a Severance Agreement Can Place Your Non-Compete Into Jeopardy

A recent case out of the Sixth District Court of Appeals in Ohio demonstrates how easily a few words (or the absence of a few words) in a severance or separation agreement can place a carefully crafted non-competition agreement into jeopardy. In Try Hours v. Douville, 2013-Ohio-53, an employer found itself battling a terminated employee to enforce a covenant not to compete that the employee argued was superseded by an integration clause within the employee’s separation agreement. Although the employer ultimately prevailed in this particular instance, the case demonstrates how easily an employer could unwittingly terminate an otherwise binding non-competition clause in the course of severing an employment relationship.

In the Douville case, the employer was involved in the expedited freight industry. Due to the highly competitive nature of this industry, the employer required employees to agree to a non-competition clause that was included within their employment agreements. The plaintiff in Douville signed an employment agreement containing such a clause agreeing not to engage directly or indirectly in any position with a competitor for a period of one year following the termination of his employment.

The employer in Douville later terminated the plaintiff on the basis that the plaintiff was not a good fit for the organization. The parties executed a separation agreement, which entitled the plaintiff to certain severance payments in exchange for a release of claims. The separation agreement included the following integration clause:
“The parties agree that this Agreement constitutes the entire Agreement between the parties as to the subject matter of this Agreement and no prior or subsequent oral Agreements, representations, or understandings shall be binding upon the parties and such shall be null and void and shall have no effect.”
The separation agreement did not include any reference to the non-competition clause from the employment agreement.

Shortly after his termination, the Douville plaintiff began working for a competitor believing that his separation agreement had superseded the employment agreement and voided the covenant not to compete. The former employer sued, seeking to enforce the one-year covenant not to compete. The Court narrowly found for the employer, holding that the reference to “the subject matter of this Agreement” within the integration clause limited the clause to the benefits the employer was willing to provide to the plaintiff in exchange for his release of any and all claims he may have had against the employer stemming from his employment. Additionally, the Court found that the clause only excluded prior or subsequent “oral Agreements, representations or understanding.”

Without these two limiting phrases, the result could have been entirely different for this employer. This case is a reminder to employers to carefully review the provisions of any such integration clauses in your separation or severance agreements to ensure that you are not inadvertently voiding otherwise binding non-competition and non-solicitation agreements.

                              


Contact: Emily Wilcheck
419.254.5260
ewilcheck@ralaw.com

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