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Employee pushes back against employer requirement that workers sign noncompetition agreements

May 1st, 2014  |  Ron Miller

It is not an uncommon practice in today’s workplace for an employer to require employees to sign some sort of non-compete, non-disclosure, non-solicitation, or confidentiality agreement to protect its competitive position should a former employee secure employment with a competitor. However, in a recent case, Darr v Roberts Marketing Group, LLC, an employee challenged an employer’s requirement that he sign a noncompetition agreement as a condition of continued employment. More importantly, although the employee ultimately voluntarily left his employment, a Missouri Court of Appeals determined that he was still entitled to unemployment benefits because his resignation was with good cause attributable to the employer.

Noncompete agreement as condition of employment. The employee sold life insurance for his employer. Several months after he was hired, the employer announced that it would be implementing a new noncompete agreement for its employees. In addition to containing confidentiality and noncompetition provision, the new agreement required employees to pay all of the employer’s costs, expenses, and reasonable attorney’s fees required to enforce the agreement. There was also a waiver of any right to a jury trial; a severability clause; and a waiver of the application of the rule of strict construction against the drafter of the agreement. All employees were required to sign the noncompete agreement, and it was a condition of employment.

In a meeting with his direct manager and the company’s VP of sales, the employee stated that he was not inclined to sign the agreement and that he needed to speak with his attorney. In view of the employee’s hesitancy to sign the agreement, he was told that he could transfer to a marketing position as an accommodation. However, he declined because it would involve a less lucrative compensation structure. Moreover, eventually every position in the company would be required to sign the noncompete agreement. Ultimately, the employee was given a deadline in which to turn in the agreement. After the employee met with an attorney, he was advised that the agreement was unconscionable and told not to sign it.

When the employee next reported to work, he was escorted to the HR office. Fearing that he might be arrested for trespass, the employee voluntarily left the premises. He was later told that the employer regarded his leaving as job abandonment. The employee did not contact the employer or return to work.

Unemployment claim. But the employee did file a claim for unemployment benefits. Initially, a deputy determined that the employee was not disqualified from receiving benefits because he was not discharged for misconduct. Specifically, the deputy found that the employee had been discharged because he declined to sign the noncompete agreement and that his employer had changed his conditions of work. However, an appeals tribunal reversed the deputy’s determination, finding that the employee voluntarily left his employment without good cause attributable to the employer. The Labor and Industrial Relations Commission adopted the decision of the appeals tribunal. This appeal followed.

On appeal, the employee challenged the Commission’s determination that he left his employment voluntarily and subsequently disqualifying him from receiving unemployment benefits. The Missouri appellate court agreed with the employee that substantial record evidence compelled a finding that he left his employment to avoid having to sign the employer’s noncompete agreement, which, under the facts of this case, constituted good cause attributable to the employer.

Under Sec. 288.050.1(1) RSMo, a claimant is disqualified from receiving unemployment benefits upon a showing that the claimant left work voluntarily without good cause attributable to the work or the claimant’s employer. A claimant leaves work voluntarily if he leaves of his own accord rather than being discharged, dismissed, or subjected to a layoff. The determinative question is whether the employer or employee committed the final act that severed the relationship.

Good cause attributable to employer. Although the appeals court found that the employee left his employment voluntarily, the question was whether he had good cause, attributable to the work or the employer, remained open. Good cause has been interpreted to mean those circumstances that would cause a reasonable person in a similar situation to leave the employment rather than to continue working. Moreover, the employee must prove that he made an effort to resolve the troublesome situation before terminating his job.
In this instance, the appeals court determined that the message communicated to the employee was that February 1, 2013, was his last day to execute the agreement if he wished to keep his job. The objective reasonableness of the employee’s decision to leave his employment must be evaluated in terms of what he knew and what he reasonably believed on the morning of February 4, 2013, when left the employer’s premises for the last time.

Moreover, the court found that the Commission’s finding dramatically understated the scope and coverage of the agreement. Here, the proposed noncompete agreement was presented to the employee with an ultimatum that it be signed within a very short period of time, affording the employee a limited opportunity to review the agreement and seek legal advice. Further, the agreement would have placed numerous additional restrictions and burdens upon the employee’s ability to find and maintain new employment after leaving the employer.
The agreement would have required the employee to abide by its terms for at least three years, with the potential for up to three additional years from the date of any violation. Moreover, by its terms the agreement would have applied throughout the country and would have applied broadly to the employee’s future endeavors. Additionally, the employee would have been potentially liable for damages in contract far exceeding the ordinary measures of damages, as well as attorney’s fees and costs.

While the court did not expressly determine that the employment was unconscionable, it made clear that it had serious reservations about its enforceability. Nevertheless, the court concluded that applying the objective standard of a reasonable person confronting the same situation, here employee was faced with “external pressures so compelling that a reasonably prudent person would be justified in terminating his employment.” Whether the agreement itself was unenforceable remains for another day in a direct challenge to its provisions. Here, the employee met his burden of establishing both the reasonableness and the good faith of his actions.