Via @thecontractsguy I learned of this article in the National Law Review. It discusses East Texas Copy Systems, Inc. v. Player, No. 06-16-00035-CV, 2016 WL 6638865, at *1 (Tex. App. Nov. 10, 2016), an opinion of the Texas Court of Appeals (opinion here). Here’s what happened:
An individual by the name of Jason Player sold his business to East Texas Copy Systems, Inc. (“Copy Systems”). As part of the sale, Player was hired by Copy Systems, starting 1 July 2013. Effective 30 June 2015, Player resigned his position with Copy Systems and immediately started competing with them.
The asset purchase agreement prohibited Player from competing for two years. A separate noncompetition agreement prohibited him from competing for two years or one year after termination of his employment. The noncompetition agreement also contained the following provision:
If Jason Player’s employment with Buyer is terminated prior to two years from the date of this Agreement for any reason other than a for cause termination, this Non-Compete Agreement will no longer be binding.
The asset purchase agreement said the same thing.
After Player quit, Copy Systems demanded that he comply with the one-year restriction. Litigation followed. The trial court granted Player’s motion for summary judgment and awarded his attorney fees and court costs.
On appeal, Copy Systems argued that that the quoted language should be interpreted to only be effective if Copy Systems terminated Player’s employment. The court disagreed, saying as follows:
We agree with the trial court that under the plain and ordinary meaning of the terms used in the parties’ agreement, the Disputed Clause was effective if either party terminated Player’s employment. Under the employment contract, both Copy Systems and Player were given the right to terminate Players’ employment by giving sixty days written notice to the other party. Thus, under the parties’ agreement, either Copy Systems or Player could terminate his employment. Significantly, the Disputed Clause simply says that the triggering event is that “[i]f [Player’s] employment with Buyer is terminated (without cause),” without identifying which party terminates the employment relationship. Thus, the emphasis of the Disputed Clause is on the termination of Player’s employment, not which party initiates the termination. Under the parties’ agreement, either party could terminate the employment relationship. Therefore, we presume that the parties, by not limiting which party initiates the termination, intended that either party could initiate the termination. Since Player’s employment was terminated prior to July 1, 2015, without cause, the non-compete clauses under the APA and the NCA were no longer binding.
Who’s the culprit in this sad story? The passive voice.
In both contracts, the language at issue begins with “If Jason Player’s employment with Buyer is terminated.” In other words, it uses the passive voice, with no actor. It follows that strictly speaking, these provisions would be triggered by either party’s terminating Player’s employment. Is that what the parties intended? It can’t be what Copy Systems intended, because it rendered the noncompetition provisions toothless.
Was the appeals court right in interpreting the contracts strictly? Who knows—I leave that sort of thing to others. From the perspective of the drafter, all that matters to me is that this case shows, yet again, that if you use the passive voice, you can inadvertently drop the actor, and that can leave you in a world of hurt. If you use the active voice, you’re forced to include the actor, which forces you to figure out what you actually want to have happen.
That’s why MSCD 13.659 says the following:
If you say if this agreement is terminated, that could be understood as applying only to termination by one or more parties. If that’s what you intend, it would be clearer to use the active voice (if either party terminates this agreement) rather than the passive voice with missing by-agent.
Of course, in this dispute Core Systems had in mind a narrower meaning, but the fix would have been the same.
By the way, Player won the litigation, but people might come away with the impression that he’s willing to welsh on the spirit of a deal by taking advantage of defective drafting.
Oh, and whoever drafted the noncompetition agreement should have said “for two years or one year after termination of his employment, whichever is longer.” That omission could have resulted in a fight too. I’ve seen crazier things.