Reid v. Getco, LLC. 2016 IL App (1st) 151801
The First District Appellate Court has ruled that provision in an employee agreement ostensibly designed to permit an employer to avoid paying post-termination payments to a terminated employee by waiving the enforcement provisions of the non-compete, still obligated the employer to pay the post termination consideration despite the employer’s election to waive the non-compete. The agreement contained a provision prohibiting the employee from engaging in any “competitive activity” for six months following the termination of his employment. In exchange, the employer promised to make post termination payments to the employee in the amount of $1 million dollars according to a specified formula. The agreement contained a standard provision prohibiting any modification or amendment to the agreement without the written approval of both parties. However, the agreement also purported to give the employer the unilateral right to waive the enforcement of the non-compete. While the agreement specified certain conditions under which the post-termination payments would cease, unfortunately for the employer, the agreement did not list the waiver of the non-compete as one of those conditions.
Following the employee’s termination the employer sent the employee an e-mail notice which stated as follows:
The Company hereby notifies you that the Restricted Period will bezero (0) months and/or is waived. You will not receive any Non-compete payments. For theavoidance of doubt, you may begin working for any employer immediately following yourSeparation Date.”
The employee waited until the non-compete period had expired and then began working for a competitor. The employer failed to make the post termination payments and the employee sued to enforce the payment provision of the employment agreement. The trial court ruled that the employer’s attempted “wavier” was ineffective to modify the payment provisions of the agreement and entered judgment in favor of the employee. The appellate court affirmed.
The appellate court ruled that the purpose of the wavier provision was to provide the employee with a mechanism to request that the employer waive the enforceability of the non-compete if the employee obtained an offer of employment that he was concerned might be interpreted to violate the covenant not to compete, rather than to provide the employer with a unilateral means to avoid making the post-termination payments. Relying upon the provision of the agreement which required both parties to approve any modification, the appellate court ruled that the unilateral wavier was not an amendment or modification entered into in accordance with the agreement.
Employers and their counsel would be well advised to review and update their employment agreements in light of this ruling. We think there are certainly ways that such post-termination payment provisions could be held enforceable. However, it is clear that the agreement must specify that one of the conditions under which payments would cease includes a post-termination wavier of the enforceability of the non-compete. In addition, it is likely courts would still question the enforceability of such a provision without some additional mutuality or other consideration for the employer’s right to elect to waive the non-compete and cease the post-termination payments.