Business Lost Because Employer Did Not Renew Employment Contract
September, 2003
Have you been busy and not had a chance to have employees renew their employment contracts? Was there a covenant not to compete in the contract? If so, it could be bad news under Marwaha v. Woodridge Clinic, 2003 Ill. App. LEXIS 679 (2d Dist. 2003). And this Second District decision would also apply to other kinds of employment contract provisions.
Facts
Plaintiff was a doctor and the Medical Director of the defendant employer, Woodridge Clinic S.C. In April of 1993, plaintiff entered into an employment contract with defendant. The employment contract provided that, for a three-year period ending June 30, 1996, plaintiff would be employed as a doctor with the clinic. The contract contained no provision for automatic extensions or continuations beyond June of 1996.
The employment contract also contained a covenant not to compete which stated that, upon the doctor’s termination of employment, for any reason, the doctor could not conduct a practice or contact patients within a 10-mile radius. The covenant not to compete was to “survive the termination of this agreement, and no matter what, shall continue to be enforceable against the doctor.”
After the employment contract ended in June 1996, plaintiff doctor continued to work for defendant employer--without a signed employment contract. In November 2001, he received a notice of termination. The doctor filed a complaint asking the court to interpret the meaning of the employment contract and non-compete clause. The doctor then filed a motion for summary judgment. The employer contended that plaintiff's termination in November of 2001 triggered the non-compete clause because it provided that it survived the termination of the employment agreement. The trial court rejected the employer’s argument and granted summary judgment to the doctor.
Analysis
The court observed that covenants not to compete are to be strictly construed. If there is any doubt or ambiguity, the court will resolve that doubt or ambiguity against restricting competition. Under those guidelines, the court found that:
[t]he only reasonable reading of the covenant-not-to-compete is that the language ‘termination of the doctor’s employment’ referred only to the employment under the employment agreement.
Therefore, the doctor’s employment agreement terminated in June of 1996.
The court reasoned that:
[i]t would be strange for parties to have an employment contract to provide for a non-compete provision to exist in perpetuity. Such a provision would govern the terms of other not yet existent employment contracts between the same parties.
The court concluded that the more reasonable interpretation of the non-compete was that after the employment agreement ended in 1996, the covenant-not-to-compete was effective for a two-year period i.e. until June 1998. Therefore, the doctor’s termination in November 2001 did not trigger the non-compete because it already had expired two years prior. Hence, the doctor was free to compete with his former employer because the employer had not renewed his employment contract.
Practice Pointer:
This case serves up several good reminders.
• Get your employees to sign new employment contracts when the old one expires.
• Carefully re-read the language of the agreement.
• Do not rely entirely on old drafts to create new employment agreements.
• Read beyond the boilerplate in the agreement.
• Revise your old agreements where necessary.
Additional Applications:
The decision might also apply to contract provisions covering the following:
• Confidentiality
• Trade Secrets
• Intellectual Property
• Luring Away Co-Workers
Back to CM Report of Recent Decisions (2003v3) 2003 Volume 3 Table of Contents
