As the enforcement of non-competition agreements becomes more crucial than ever, some employers are including provisions that require or promise payments to the former employees during the post-employment period of non-competition. If properly crafted, such a payment may act as the additional consideration needed for the promise not to compete and may dissipate the former employee’s argument of undue hardship during the non-competition period. Employers promising to make such payments must be prepared to follow through with their promises, as the Eighth Circuit recently held.
On February 25, 2009, the Eighth Circuit upheld a district court’s decision to award Roger Bannister, a former Director of Technical and Product Development for Bemis Company, Inc. (“Bemis”), nine months worth of his salary, based on a promise in his non-competition agreement. See Bannister v. Bemis Company, Inc., No. 08-1634 (8th Cir. Feb. 25, 2009).
Bannister had worked at Bemis since 1990 and signed a Confidentiality and Non-Competitive Agreement in 2000 which prevented him from, among things, working for a competitor for 18 months following the termination of his employment. The agreement further provided that in the event that his employment with Bemis terminated, and Bannister “was unable to obtain employment consistent with [his] abilities and education solely because of the [non-competition provisions]” such provisions continued to bind him only as Bemis, in its sole discretion, made payments to him equal to his monthly base salary at the time of his termination. In order to receive such payments, the agreement provided that Bannister needed to provide Bemis with a detailed written account of his “good faith and aggressive effort[s]” to obtain employment and a sworn statement that, although he had made a good faith effort, the non-compete was the sole reason for his unemployment.
Bannister Wished to Work for a Competitor
In early 2004, Bannister informed, Bemis, his then current employer that he wished to be released from his non-compete obligations to accept employment with a competitor, Mondi Packaging (“Mondi”). Bemis refused to provide him with permission to do so. Thereafter, Mondi and Bemis were involved in a litigation arising out of Mondi’s hiring of Bemis employees. The case was settled. Pursuant to the settlement, Mondi agreed to a 18 month no-poach of employees subject to noncompetition agreements. In December, Bemis offered Bannister a severance package of $40,000 and a release from the non-compete provisions other than for Mondi. Bannister declined the offer and was terminated in January 2005.
In February, Bannister sought payment pursuant to the agreement because of his unemployment. He told Bemis that he had been told by Mondi that it wished to hire him but could not do so because of his noncompetition agreement. He also sent a job contacts log to Bemis as support for his payment request. Thereafter, Bannister was informed that he was released from his non-competition obligation as to all companies, other than Mondi. Bemis took the position that the former employee could not work for Mondi because of the no-poach agreement between the two companies. Bannister remained unemployed for nine months and sought pay for that period of unemployment
The Court’s Decision
The Eight Circuit found that the non-competition agreement was unambiguous and clearly provided the company with discretion as to whether to enforce the noncompetition provisions by paying the monthly salary during the unemployment period. As the company refused to provide a full release from the non-compete (and tried to prevent him from working for Mondi), the company was required to pay when Bannister provided proper documentation. The Court found that the clearly written contract did not provide for a partial release — only a full one. Thus, the company did not have the option to only offer a partial release from the non-competition agreement and try to enforce the remainder of it. The fact that Mondi and Bemis had separately negotiated a no-poach agreement was on no consequence because it only applied to individuals subject to non-competition agreements and it was in Bemis’ discretion whether to enforce the former employee’s agreement. Consequently, Bemis was ordered to pay over $80,000 to the former employee.
The Bottom Line
For all employers – whether or not they are within the Eighth Circuit – this case stands as a reminder to only promise what you are prepared to do and make efforts to comply with the terms of the contract. While this case involved a clear agreement, in instances of ambiguity, such questions are decided against the drafter. Thus, employers considering whether to include a provision to pay during a non-compete must keep in mind that if they do so, they will need to follow through on their promises of payment.