Published:

05/31/2011 07:53pm

Hidden Handcuffs - Watch Out for Buried and Disguised Non-Compete Agreements

CASE HISTORY: "Objection!" I bellowed, "My client is not an attorney, and so his understanding of the law is irrelevant to the issues before this arbitration panel." "Objection overruled," the arbitration panel chairman immediately shot back. "What is in writing, and therefore binding on your client is, indeed, relevant. Now, Ms. Downey, proceed with your questioning." I sat down.

We were engaged in a heated battle of wits and wills before an arbitration panel of the Chicago Board of Trade (the "CBOT") in Chicago, and getting to the central issue of the case. My client, Louis Tepper, was a senior executive who had "jumped ship" from RBK Trading to a competing trading firm six months earlier. RBK, his former employer of eight years, claimed that he had "entered into" a non-competition agreement with them, that he had violated that non-competition agreement when he "jumped ship" to a competitor and by the terms of that non-competition agreement he had to both resign from his present job, and repay his last year's bonus to RBK.

Had Louis signed such an agreement? Well, yes and no. Had he "entered into" one? Well, yes, and no. On his second day of employment with RBK, eight years earlier, he had been handed a yellow booklet and a piece of paper. The yellow booklet said on its front cover "RBK Standard Employee Handbook" and the piece of paper said on it, "I acknowledge receipt of the RBK Standard Employee Handbook, I have carefully read this booklet, and I agree to abide by its terms." Louis had signed the piece of paper, given it to his HR representative, and then thrown the yellow booklet into the back of his desk drawer.

The problem was that, on page 117 of the yellow booklet, it stated "If I leave the company's employment, I promise that I will not work for a competitor of RBK Trading for 12 months. If I violate this agreement, I may be stopped from doing so by a Court order, and I will repay my last year's bonus." Louis was totally unaware of this, but learned of it only eight years later, by way of a nasty and threatening letter from RBK's attorneys, two weeks after he had started working for RBK's competitor.

My opposing counsel, Ms. Downey, continued, "So, Mr. Tepper, did you receive a copy of the Employee Handbook? "Yes," he responded. "And, Mr. Tepper, is this your signature on this document entitled "Acknowledgment of Receipt." "Yes," Louis responded.

Ms. Downey then paused, and asked, ever so slowly, "Now, Mr. Tepper, I ask you to turn to page 117 of the Employee Handbook... did you agree that, if you left your employer, you would not work for a competitor for one year?" Louis responded, ever so slowly, "I guess so," and slumped into his chair.

"No further questions," Ms. Downey said, with a smirk on her face the size of Rhode Island. "In fact, we rest our case." Somehow, her smirk grew even larger. Louis slumped into his chair even deeper. His new job was in jeopardy, and it looked like he was going to return to RBK his last year's bonus of $250,000.

Lucky for Louis, I read carefully, and so had a bit of an "ace up my sleeve." I stood up, and said, "I have a few questions for Mr. Tepper, please." Ms. Downey appeared unconcerned. "Mr. Tepper, would you please turn to page 205 of the RBK Employee Handbook, and address your attention to the fourth paragraph, second and third sentences. I ask you to read that sentence aloud, to the arbitration panel." Ms. Downey looked at the page herself, and her smirk lost a bit of its luster.

"Sure," he replied. "Nothing in this Employee Handbook shall be interpreted to create a contract of employment for any specified period of time, or any other binding obligation on the Employer or the Employee. Only an agreement signed by both an authorized officer of RBK Trading and the employee will be binding."

The smirk on Ms. Downey's face was now gone. I knew her objection would follow: "Objection. Mr. Tepper's understanding of the law is irrelevant," Ms. Downey declared. When I reminded the Arbitration Panel of the ruling the Chairman had just made when I rai