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Be Careful in Drafting Non-Compete Agreements

Posted by Frank Steinberg | Oct 13, 2016 | 0 Comments

It's been a while since we've posted anything on non-compete agreements.  Here's an interesting situation from Illinois in which an employer wishes that it had been more careful in writing down the details of a severance agreement.  The case is Reed v. Getco, LLC, decided September 30, 2016. In reviewing this, as is our custom, we will spare you the technicalities.

The basic dispute arose when the plaintiff, an employee, left the defendant company.  The parties had previously negotiated a severance agreement to address their respective interests when they decided to call off their relationship.  The deal that they reached called for the employee to refrain from competing with defendant for a 6 month non-compete period, in exchange for a payment of $1 million.  Yes, that's a “1” followed by six zeroes for 6 months of traveling, surfing, gardening, or whatever the employee chose to do with his time, as long as he did not compete with his former employer.

Bearing in mind that the touchstone of non-compete agreements is reasonableness, this seems like an enforceable agreement.  It's eminently reasonable, although you could probably argue about who got the better of the deal.  But that's not what courts consider. 

Well, shortly after the plaintiff left his job the employer sent him a letter saying, in essence, “we were just kidding about the 6 month non-compete period.  Go do what you want starting right now.  And by the way, we're not going to pay you $1,000,000.”

This, as you might imagine, did not sit well with the employee, who sued for his money.  He won. 

Now this is where you'll be glad that I've spared you all the technical stuff.  If you want to read a more traditional analysis with a link to the court's opinion, there's a good one at Trade Secrets & Noncompete Law Blog.

For our purposes, suffice it to say that the court considered all of the technical defenses raised by the employer, saw through them to essence of the agreement, and decided that a deal is a deal. Therefore, the court found in favor of the plaintiff. 

The lesson here – and it applies with equal force to both the employer and employee – is to be sure that your written agreement accurately and completely sets out the terms of your agreement.  This case is interesting and makes for a good illustration because the financial stakes were high, but the same principle applies to all such agreements.  It's worth the time and relatively small up-front expense to get it right the first time.  In this case, the employer made a million dollar mistake. 

About the Author

Frank Steinberg

Frank is the founder and principal of Steinberg Law, LLC. A Jersey boy born and bred, he focuses on employment litigation and counseling, business litigation,  and aviation law. Following law school and a clerkship in the federal district court Frank spent his early career with large litigation ...


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