Wednesday, December 16, 2009

Utah Refuses to Imply Equitable Tolling Remedy (Systemic Formulas v. Kim)

A federal district court in Utah has denied an employer's request to extend the time of a non-compete agreement past its expiration date based on the theory of equitable tolling. That remedy provides that a post-employment covenant can be extended past its stated term for a period of time in which an employee actually was in breach. So, for instance, if an employee violated a covenant for six months and was subsequently enjoined prior to trial, a term of six months could be added on to the covenant to give the employer the benefit of its bargain.

However, the remedy is not automatic. Courts largely do not have a problem with the remedy in concept but consider it a drafting issue. Illinois is one such jurisdiction; unless the contract confers on the employer the right to extend the non-compete for a period of breach, a court will not imply the remedy. This is not much of a surprise, since it amounts to a rewrite of a contract that already is supposed to be strictly construed against an employer. This was the essence of the Utah court's holding. Drafting an equitable tolling clause is simple and should be part of a corporate counsel's form document.


Court: United States District Court for the District of Utah
Opinion Date: 12/14/09
Cite: Systemic Formulas, Inc. v. Kim, 2009 U.S. Dist. LEXIS 116038 (D. Utah Dec. 14, 2009)
Favors: Employee
Law: Utah

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