Drafting Error Lets Employee Terminate Non-compete.
A financial advisor’s employment agreement stated that she could not compete for a one-year period “following the termination of [her] employment for whatever reason.” Unfortunately for the employer, a separate provision in the agreement gave the employee the right to nullify the restriction, stating that “[e]mployment is at will” and “either party may terminate the Agreement on written notice. ”
In Miller v. Honkamp Krueger Financial Services, Inc., the U.S. Court of Appeals for the Eighth Circuit held that the meaning of the termination provision “is plain: the first clause provides that employment is ‘at will,’ and the second clause instructs that the Employment Agreement is freely terminable on written notice.” The court acknowledged that its interpretation “may not be the result” the employer had in mind when it drafted the agreement, but “[w]e will not rewrite an unambiguous provision.” .
The record established that the employee, Cara Miller, did indeed give written notice of the termination of the Employment Agreement and therefore she was released from the noncompete restriction. Ouch for Honkamp Krueger and its lawyers.
What could have saved the employer in this case? More careful drafting, of course. The termination provision should have stated that “employment is freely terminable on written notice,” as opposed to the “Employment Agreement” being terminable. In addition, as belt and suspenders, the non-compete provision should have had an explicit survival clause providing that the restriction would survive and continue in force after the termination of employment or termination of the Employment Agreement.
For employees with a poorly drafted Employment Agreement or restrictive covenant, this case provides hope and inspiration to find that loophole, just like Miller did.
For employers, the lesson is the opposite – review those agreements and make sure they are tight and well-drafted. If not, review potential remedial steps with counsel.