Thursday, January 7, 2010
Application of Non-Compete in Term Agreement Often a Matter of Contract Interpretation (St. Johns Investment v. Albaneze)
Term contracts (that is, those for a set period of time) containing non-compete claues often present interpretation questions vastly different than agreements for at-will employees. The problem, one which often leads to litigation, generally concerns when a non-compete expires.
A recent Florida appellate case dealt with a very common situation involving a non-compete in a term contract. In St Johns Investment Management v. Albaneze, an investment advisor entered into a four year employment agreement with a firm to which he sold his prior competing company. He had a two-year client non-solicitation covenant that provided: "in the event Employee is employed by Employer throughout the term, [the period shall be] twenty-four months following the date Employee resigns...or is terminated by Employer." The same clause provided the industry non-compete expired after the four-year term ended.
Albaneze, the business seller turned employee, continued as an at-will employee after his term contract ended in 2006. More than two years later, Albaneze quit and went to work for a competitor. He admitted to soliciting clients, which would have violated the client non-solicitation restriction. Albaneze claimed, however, that the term on his non-solicit expired in 2006 when the term contract ended.
The trial court agreed with him, but the appellate court reversed and entered a mandate for an injunction to issue. The court's rationale was that as a matter of contract interpretation, the non-solicitation covenant could be triggered even after the four-year term ended. In particular, the court seized upon the contract language which stated that the two-year term applied in the event Albaneze was employed throughout the Term. To do so, he had to be employed past the end of the term contract. Accordingly, the non-solicit could be, and was, triggered by a resignation after the contract expired.
This is curious contract language for St. Johns to choose, for it could be argued that had Albaneze quit during the four-year term, the non-solicitation period would not apply at all. That seems counterintuitive, but maybe his contract contained another provision dealing with this hypothetical. Based on what the parties' contract actually said, the court probably reached the correct result.
In any case involving a term contract, attorneys must be very careful to word the non-compete carefully. Illinois, unlike Florida, will strictly construe employment agreements against the employer, so that any ambiguity will be resolved in favor of the employee.
Court: Court of Appeal of Florida, First District
Opinion Date: 11/13/09
Cite: St. Johns Investment Mgmt. Co. v. Albaneze, 2009 Fla. App. LEXIS 16873 (Fla. Ct. App. Nov. 13, 2009)