Court Rejects Non-Compete Which Applied Following Employee "Termination" When the Employee Voluntarily Resigned

Earlier this month, the Franklin County Court of Appeals affirmed a judgment for physicians and a medical officer manager who were alleged to have violated post-employment restrictive covenants and misappropriated trade secrets.  Buckeye Wellness Consultants, L.L.C. v. Hall, 2022-Ohio-1602.   The Court agreed that the one-year terms of the employment agreements did not automatically renew when the contracts lacked language indicating automatic renewal and both physicians indicated that they wanted to renegotiate their contracts before they ultimately resigned between six and 16 months following the expiration of their agreements.   The non-solicitation clauses only applied during the term of the agreement and one for one year after termination of the agreements.   The clause had expired before one of the physicians had resigned.   While the court indicated that the clause could not be enforced against the other physician who had resigned only six months after his agreement expired, the Court also pointed out that the employer had failed to identify a single patient who had been inappropriately solicited and refused to find notification of a change of practice to constitute a solicitation.   The Court also agreed that one non-compete was unenforceable because the employee never worked in the restricted territory.  The Court also found that the other non-compete did not apply because the employee voluntarily resigned, his agreement implied a distinction between termination and (voluntary) separation, and the clause only applied “for one year “following termination of the Employee.”   Finally, the Court rejected the trade secret claim because the employer failed to produce any evidence that the defendants had inappropriately accessed the password protected trade secret lists or used them. 

According to the Court’s opinion, the defendants all worked at the same medical office before being hired by the plaintiff employer.  Each physician also practiced elsewhere.   The two defendant physicians entered into one-year employment agreements which contained restrictive covenants prohibiting competition and solicitation of patients.   One non-compete applied “so long as the Employee is employed by the Employer, and for a period of one (1) year following termination of the Employee.”  The other non-compete applied for one year “following termination by the Medical Doctor/Physician.”   Both non-solicitation clause applied only for one year following “after termination of this agreement.”  Interestingly, the agreements did not provide for automatic renewal.   Both physicians attempted to negotiate better terms after the first year and, when unsuccessful, submitted their resignations.  One resigned six months after his agreement expired and one 16 months after his agreement expired.   The office manager never signed an agreement or non-compete.   They ultimately formed a new practice and all patients were informed by the defendants and plaintiff of their move.  The employer then filed suit for breach of contract, tortious interference, theft of trade secrets, conversion, conspiracy, unjust enrichment, etc.  The trial court entered judgment for the defendant employees.

The most significant issue was when the one-year restrictive covenant periods commenced and expired.  As an initial matter, both clauses applied “during the term of the Agreement” and for “so long as the Employee is employed” by the employer.   Both non-solicitation clauses expired one year after termination of the agreements.   The employer argued that the term of the agreements and non-competes continued until termination of employment, but the Court disagreed.  Each clause indicated that “[t]he term of this Agreement shall commence on the Effective Date of this Agreement and shall continue for one (1) year(s) thereafter” and that the parties could revisit the physician’s compensation at the end of each contract year.  The agreements were silent as to the manner or duration of any renewal.  The employer asserted that renewal was implied, but the Court disagreed.   The language indicating that the agreement had a term of one -year was clear and unambiguous, particularly when renewal was never mentioned.   Generic references in other clauses of the agreement to potentially renewable terms was not a substitute for an explicit term discussing how long and when the contract would be renewed.  The reference to “year(s)” did not make the agreement ambiguous because it simply meant that the term “one” could have been made “five” while being negotiated.

The Court then addressed whether the restrictive covenants continued to apply after the agreements expired on their terms. 

The general rule of contracts under such a situation was " '[w]here a contract of employment for a definite time is made and the employee's services are continued after the expiration of the time, without objection, the inference is that the parties have assented to another contract for a term of the same length with the same salary and conditions of service, following the analogy of a similar rule in regard to leases.' . . . . The employee who continues working under the same terms and conditions after the employment agreement has expired becomes a hold-over employee.

However, the presumption that arises from an employee's continued employment is "rebuttable by proof that a new contract for the continued period has been entered into, or by facts and circumstances showing that the parties did not intend to continue upon the terms and conditions of the original contract."

In this case, at the expiration of the employment agreements, both physicians indicated their displeasure with their terms and conditions of employment and attempted to negotiate new agreements.    Among other things, one wanted to become a part-owner and the other wanted to work more days each week and spend more time with each patient and see more investment in EMR, etc.  “The evidence shows that the doctors did not intend to continue working under the terms and conditions of the original employment agreements, so a new one-year contract does not arise by implication of law.”  Accordingly, the terms of their prior written agreements no longer bound them and they became employed at will, entitling each of them to resign prior to completing another year of employment. 

The non-compete language was slightly different for each physician and their employment agreements expired at different times.   With respect to Dr. Santiago, the Court agreed that the non-solicitation covenant – which applied for 12 months after expiration of the employment agreement --  had expired by the time he had resigned 16 months after his employment agreement had expired.   The duration of the non-compete was ultimately irrelevant because he always worked outside the 5-mile restricted radius.   Both covenants applied so long as they were employed and were triggered by their terminations.   Although the Court thought that the language “termination by” the physician was ambiguous when Dr. Santiago had voluntarily resigned and the agreement did not define “termination,” the ambiguity was ultimately irrelevant.    In other words, the non-solicitation clause did not apply because it had expired before he resigned.  The non-compete duration was irrelevant because he had never worked inside the restricted territory.   

Dr. Hall’s situation was more complicated because he resigned only six months after his agreement had expired (before the non-solicitation clause expired) and the duration and territory of his non-compete were different:

During the term of this Agreement, including the renewals hereof, so long as the Employee is employed by the Employer, and for a period of one (1) year following termination of the Employee, Employee shall not . . . . Employee shall further not solicit any patient or employee of Employer for a period of one (1) year after the termination of this agreement.

Unlike Dr. Santiago’s agreement, Dr. Hall’s agreement contained a separate provision governing terminations which apparently did not explicitly apply to this dispute.  Also, unlike Dr. Santiago’s agreement, Dr. Hall’s agreement defined “employment separation” as "’the separation or termination of Employee's employment with the Company, regardless of the time, manner or cause of such separation or termination.’  . . . . ‘13(D) also refers to actions based on an employee's ‘termination or separation.’"  While “separation” was never mentioned in the non-compete clause, the definition of employment separation indicated that termination and separation were different terms with different meanings.  “The employment agreement clearly provided different meanings for the two terms, and they are not interchangeable.”  Because the non-compete only applied after employment if Dr. Hall were terminated, the Court concluded that it did not apply after employment if he voluntarily resigned.  

There was no discussion of the use of the terms in IRC 409A(a)(2)(A)(i) or 26 CFR § 1.409A-1 ("An employee separates from service with the employer if the employee dies, retires, or otherwise has a termination of employment with the employer.")

Oddly, the Court then converged the language of the non-compete clause with the language of the non-solicitation clause in rejecting the employer’s argument that the “termination” mentioned in the non-compete clause meant termination of their relationship, not the employee:  “the plain meaning limits termination to firing of the employee, which did not happen here. Hall was not subject to the covenant not to compete and solicit.”

The Court also rejected the claims that the defendants had misappropriated trade secrets (i.e., a password protected list of patient names and attorney referral sources).   The Court of Appeals found that the employer failed to produce any evidence that the lists were misappropriated, how or when the lists were obtained or how or when they were used.  Indeed, the employer could not identify a single patient who was supposedly misappropriated or solicited.  The Court concluded that it was mere speculation that the employer lost patients and the defendants gained patients based only on a misappropriation of password protected patient and referral source lists.

The Court rejected any argument that patients were improperly solicited when they were informed that the defendant physicians had changed medical practices:

Hall and Santiago, pursuant to their professional obligations, informed their patients that they were moving to a new location. Doctors have an obligation to their patients to ensure continuity of care and prevent a patient from being abandoned. These letters do not rise to the level of solicitation.

It is notable that there are a limited number medical providers who accept new workers' compensation patients, and so it is logical that patients will seek continuing care with a familiar provider, even when the provider moves. In addition, when you consider that Spanish speaking patients only have one or two medical providers who speak fluent Spanish, Santiago is in great demand by both patients and attorneys,  . .

Indeed, it appears that patients followed Dr. Santiago from his prior practice to the employer when he was hired and he was always busy with Spanish-speaking patients.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Examines The Last Man Standing

 Last week, the Sixth Circuit Court of Appeals reversed an employer’s summary judgment on a breach of contract claim brought by its former CEO and award of prevailing party attorney’s fees on the grounds that it was ambiguous – and thus a jury question – whether the CEO’s comment that employees should not be the “last man standing” breached his employment agreement to not solicit employees to resign their employment.  Slinger v. Pendaform Co., No. 18-6187 (7-11-19).   The employer’s honest belief and reliance on a non-discriminatory reason for terminating the CEO is insufficient evidence to warrant summary judgment for breach of contract when the CEO plausibly proved that the employer’s explanation was simply pretext to avoid paying severance pay.   When it comes to evaluating breach of contract claim, intent and good faith is generally irrelevant unless the contract contains a clause making it relevant.  In other words, breaching a contract is a strict liability issue that cannot be avoiding by claiming a good reason or good faith.


According to the Court’s opinion, the defendant company was acquired by a company which was not a fan of the CEO’s performance.   He was directed to simply respond to emails and to forward emails he received.  Because he had an employment agreement that required severance pay if he was terminated without cause, the acquiring company intended to simply let his employment agreement expire naturally so that he would not be entitled to severance pay.   However, the agreement did not require severance pay if he was fired for cause (which included gross misconduct, fraud, felony or insubordination).  The agreement also contained a provision prohibiting him from soliciting employees to resign their employment.    As sometimes happens, the acquiring company began laying off employees.  During this period, the CEO visited one of the Ohio plants to retrieve the personal items he had left there and chatted with some employees about the future of the company.   Apparently, he said something to the effect that they should not be the last man standing.  Some employees did not think much of his comments, but others were alarmed and reported the comment to new management.   Within two minutes of learning of the comments, the new company president emailed that the CEO should be fired.  The CEO was then quickly fired for “gross misconduct” by soliciting employees to resign in violation of his employment agreement.   When he brought suit for his severance pay, the trial court granted summary judgment to the employer and awarded it over $188K in attorney’s fees as the prevailing party under the agreement.  The CEO appealed and the Sixth Circuit reversed.


The Court criticized the trial court’s weighing of the evidence at the summary judgment stage of the litigation.  The trial court seemed to be relying on the honest belief rule and reliance on a legitimate business reason instead of construing the evidence in favor of the party opposing summary judgment as required by the rules of civil procedure.    The Court found that Wisconsin law – which governed the agreement –and the employment agreement do not recognize a good faith defense to breach of contract.   While the contract could have created a good faith belief defense for the employer (and some contracts do), this one did not.   Therefore, the employer’s subjective belief as to whether the CEO had engaged in gross misconduct was insufficient evidence to avoid a jury question on a material dispute of fact as to whether the CEO’s comment breached the agreement.  


While the parties did not materially dispute what the CEO said, they disputed what he meant and was understood by his comment:

What his words meant is disputed.  The gloss that one puts on the interaction is the nub of this case.  In the company’s telling of the tale, Slinger deliberately approached every employee to deliver the same missive of impending doom, disrupting the workplace by soliciting employees to leave.  In Slinger’s version, he was approached by employees nervous about their job security after the merger and told them kindly to look after themselves.  And indeed, some employees took his comments as a friendly goodbye, while others feared for their jobs.  The District Court ignored these differences in simply stating that “five employees stated Plaintiff’s comment concerned them and believed they should find other employment.”  2018 WL 3708023, at *7.  That statement fails to summarize all of the evidence.  “A study of the record in this light leads us to believe that inferences contrary to those drawn by the trial court might be permissible.”

In contrast, the CEO asserted that the company’s explanation was simply pretext to terminate him without severance pay.  He put forward a compelling case:  The purchase agreement noted next to his name “no severance.”   The decision to terminate him was made within two minutes.  In addition, the Company suggested that it fired him for gross misconduct and then changed it to breach of the non-solicitation clause.   Moreover, the employment agreement did not define “solicit.”

What Slinger said is not disputed, but the import and meaning of his words in context is disputed.  Each party’s characterization of the same events is plausible and is linked to specific evidentiary support.  Given that the term “solicit” is susceptible to two reasonable, competing interpretations, summary judgment here was improper.

Because there could be different inferences drawn from the evidence whether the CEO was fired for cause or simply to avoid paying severance pay, the jury was entitled to hear the evidence and decide whether the agreement had been breached.  Accordingly, the attorney’s fee award was also vacated.  One can wonder if there is too much water under the bridge for the parties to settle in light of the expense of this litigation.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.