Stark Truss is an Ohio manufacturer and distributor of components used in the construction of buildings. The manufacturing giant was recently sued by an employee of 35 years regarding a covenant not to compete. This employee was also the company’s asset manager. Immediately after leaving the company, he accepted a similar position in the same geographic area with a competitor.
When the employee left Stark Truss, he executed a severance agreement that included a one-year restrictive covenant. Stark Truss retained unfettered discretion to decide whether any new employer constituted a competitor, and if so, it could terminate any and all severance benefits. Under the terms of the agreement, a “competitor” was any business located within 100 miles of Stark Truss and “substantially similar.” The employee was ordered to provide Stark Truss with detailed information concerning any new employer.
The employee sued his former employer, seeking a declaration that he was entitled to the full extent of his severance benefits. The court ruled in favor of Stark Truss, and the judgment was upheld on appeal. The appellate court noted that the plaintiff was represented by counsel when he signed the agreement, and thus could be presumed to have fully understood it. Moreover, Ohio courts have consistently upheld similar “sole discretion” contract provisions.
A lingering question remains: is an employer’s unilateral right to decide whether a former employee violates a non–compete clause unlimited and unqualified? Probably not. However, there is very little in the way of case law addressing the contours of the issue.
One opinion out of Pennsylvania refers to a “sole discretion” provision in the context of a non-compete agreement. The court ruled in favor of the company but did not go into detail as to that aspect of its ruling. Another case out of Florida held that “sole discretion” can be unlimited. Each party to a lease had “sole discretion” to decide whether or not to review. The court stated that imposing a duty of good faith with respect to a “binary choice” would frustrate the parties’ interests. Finally, an older Florida case found that the reasonable expectations of parties should be protected from an arbitrary discretionary decision. If the parties seemed to anticipate that good faith would apply, then it is required. Although this lawsuit did not explicitly involve a covenant not to compete, the reasoning can be applied by analogy.
Philadelphia Business Lawyers at Sidkoff, Pincus & Green, P.C. Provide Effective Counsel Regarding Non-Compete Agreements
If you have questions about a non-compete agreement, Philadelphia business lawyers at Sidkoff, Pincus & Green can help answer whatever questions you may have. To schedule a confidential consultation, call us at 215-574-0600 or contact us online today. With offices located in Philadelphia, we represent clients throughout Pennsylvania and South Jersey.