No survival clause? Non-compete tied to end of employment didn’t survive termination of employment agreement

An employee’s employment agreement included both a non-solicitation clause and a non-competition clause; the latter clause read in part as follows: “Employee further covenants that for a period of one year following the termination of Employee’s employment for whatever reason ….” (Emphasis added.) The agreement also allowed either party to terminate the employment agreement at will.

Years later (following acquisition of the employer), the employee quit her job and, three days later, terminated her employment agreement. Reversing a preliminary injunction enforcing the non-competition clause, the Eighth Circuit held that the clause did not survive the employee’s at-will termination of her employment agreement:

By its terms, the non-compete provision survived the termination of Miller’s “employment.” But there is nothing in the non-compete provision to suggest the parties intended it to survive the termination of the Employment Agreement. And the contract treats the term of employment and the term of the Employment Agreement as two distinct concepts.

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We understand this may not be the result [the employer] envisioned when it drafted the Employment Agreement. Indeed, the Employment Agreement is no exemplar of precision; it is possible that [the employer] actually intended for the term of employment and the term of the Employment Agreement to be coextensive. But that is not what the contract actually says. We will not rewrite an unambiguous provision.

Miller v. Honkamp Krueger Financial Services, Inc., No. 20-3061, slip op. at 6, 8 (8th Cir. Aug. 24, 2021).

As a similar example: A contract between a union and a company gave the union the right to audit certain books and records of the company to confirm that the company had complied with a requirement in the contract to make certain contributions to employee-benefit funds. The contract didn’t specify that the audit right would survive termination of the contract — so, because (according to the court) the company terminated the contract, the union lost its right to conduct a final compliance audit. See  New England Carpenters Central Collection Agency v. Labonte Drywall Co., 795 F.3d 271 (1st Cir. 2015) (affirming judgment after bench trial).

Drafting lesson: In each of the above cases, the contract in suit could have been drafted to specify that the relevant clause would survive any termination or expiration of the contract.

Footnote: Years ago my senior partner and friend, Tom Arnold, opined that contracts are historical facts, much like the Constitution and the Declaration of Independence — so (in Tom’s view) there should be no such thing as the “term” of a contract itself, but only of specific rights, obligations, and relationships under the contract. The reality, of course, is that most drafters refer to “termination of this Agreement” or “expiration of this Agreement” as a shorthand; as we see above, that can cause problems.