Random Drafter Shoots Self in Foot Randomly

From this post on D.C. Toedt’s blog I learned about Miller v. Honkamp Krueger Fin. Servs., Inc., No. 20-3061, 2021 WL 3729047 (8th Cir. Aug. 24, 2021) (PDF here). It’s of interest as an instance of a drafter making an odd mistake.

In 2006 Miller entered into an employment agreement with HKFS. Among other things, it said that “for a period of one year following the termination of Employee’s employment for whatever reason,” Miller wouldn’t compete with HKFS. After HKFS was acquired in 2020, Miller quit her employment and immediately began working for a competitor. A couple of days later, Miller also terminated the employment agreement. HKFS sought a preliminary injunction. The lower court granted it; the Eighth Circuit reversed.

Here’s what the court said:

By its terms, the non-compete provision survived the termination of Miller’s “employment.” But there is nothing in the non-compete provision to suggest the parties intended it to survive the termination of the Employment Agreement. And the contract treats the term of employment and the term of the Employment Agreement as two distinct concepts. …

Specifically, Section 2 of the Employment Agreement provides: “Term. Employment is at will; however the parties agree that either party may terminate the Agreement on written notice.” The subject of the two clauses is not the same. The first clause “employment is at will” refers to the term of employment, while the second clause allowing either party to “terminate the Agreement on written notice” refers to the term of the Employment Agreement. The meaning of Section 2 is plain: the first clause provides that employment is “at will,” and the second clause instructs that the Employment Agreement is freely terminable on written notice. By its plain meaning, Miller could quit or be fired at any time or for any reason; however, written notice was required to terminate the Employment Agreement.

Section 2’s distinction between the term of employment and the term of the Employment Agreement is critical because, as noted above, the non-compete provision only survives the termination of Miller’s employment. There is nothing in the non-compete provision to suggest that it survives the termination of the Employment Agreement. It follows that when Miller left her employment with HKFS on September 4, the non-compete provision remained in force, assuming, arguendo, that the Ancillary Agreement did not supersede the Employment Agreement with respect to the non-compete provision. Nonetheless, when Miller terminated the Employment Agreement in writing on September 7, the non-compete provision became inoperable.

I agree with the Eighth Circuit. Normally, a no-competing provision doesn’t have a term—it just says for how long the employee is prevented from competing. It follows that there’s no basis for an employee to terminate a no-competing provision.

A no-competing provision might occur in an employment agreement that provides for a term of employment. In that case, an employee might terminate the employment agreement to terminate their employment, but it would be understood that the no-competing provision nevertheless applies after termination, instead of being terminated along with the term of employment.

But in this context of this dispute, employment was at will, so terminating the employment agreement wasn’t require to terminate employment. For termination to have any meaning, it would have to apply the no-competing and no-soliciting provisions. That’s presumably not what HKFS had in mind, but you can’t assume that a court will be inclined to fix a drafter’s mistake.

The fix would have been simple—eliminate the reference to terminating the contract! Adding a provision saying that the no-competing provision would survive termination would not be a suitable fix, as that would involve preserving the mistake and adding something to neutralize it. Instead, eliminate the mistake.

Incidentally, if employment is at will but the employee enters into a contract covering ancillary matters, I recommend you call it something other than an employment agreement, to avoid just this sort of confusion.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.