Joel Dillard & Associates

Representing Working People

Noncompete agreement, Severance agreement, and other employment contract issues

What to do before you sign a non-compete agreement

You're excited. The new boss seems great, everybody is really friendly, and you'll finally be able to escape that miserable service job and actually use your degree.

Then the initial paperwork arrives: an I-9, insurance notices and brochures, some kind of contract... wait a minute, what is this? A Noncompete Agreement... Well, you say to yourself, I guess that only matters if I leave this job. I'm not thinking about that right now. And I have to sign it, I guess, so I'm sure this will work itself out later...

Think again. You need to understand what you are signing before you sign it: you could be signing away your right to practice your profession. The average tenure in one job is only about five years. There are no guarantees about tomorrow, and, whether it is a better offer somewhere else, or that jerk Dave getting promoted over you and treating you like dirt, or family reasons that require you to move away, you could find yourself leaving this job very quickly - and deeply regretting that noncompete agreement.

Mississippi law allows non-compete agreements, so long as they are reasonable, which is as vague as it sounds. Redd Pest Control Co. v. Heatherly, 248 Miss. 34 (1963). What it amounts to, in practice, is that the courts will enforce your non-compete agreement to whatever extent they think is reasonable for someone doing the kind of work you do for the kind of employer you have. Some non-competes can prohibit you from engaging in your profession anywhere in the nation for a period of a year or more. Others will be limited to a particular county, or to a five-mile radius. It will depend on the nature of the business and your place in it. If, for example, you develop close relationships with the employer's customers all over the state, the courts will likely enforce an agreement preventing you from practicing the same profession for yourself or any competitor anywhere in the state, perhaps for year or even longer.

Some of these agreements are unclear. For example, consider a veterinarian prohibited from practicing within Madison County, within a ten-mile radius of the employer's practice. Suppose the veterinarian opens a practice 9 miles away, but in Rankin County? Is this prohibited? It is good to notice these issues before signing, and the trained eye of an attorney can identify and advise about these kinds of issues.

What about bargaining with the employer about the non-compete before signing? This is a matter requiring a great deal of sensitivity: the new employee doesn't want to send a signal to the employer that she is already planning to leave, or that she loves to litigate, but at the same time she needs to protect herself.

The strategic, confidential advice of an attorney could be extremely helpful in this situation. And it may be more affordable than you think.

Leaving work the right way

Leaving work is never easy, but for employees that have potential legal claims, it can also be a trap for the unwary.

If you resign, for example, this means you weren't terminated, and that can have a number of consequences for legal claims. It is not easy to argue that you were wrongfully terminated if the decision to leave work is one that you made on your own. It isn't impossible, but it makes the case significantly more complex and difficult than a true termination case.

For example, suppose a boss said something offensive and the employee responded well I'll see you in court and walked off the job. This may have just ruined the case. First, you can bet the boss will deny what he said, and with nothing in writing it can be hard to prove him a liar. Second, he didn't fire the employee, and by walking off the employee risks (at least) the lion's share of any potential back pay. The employee may have benefited from getting advice from an attorney before quitting.

To be clear, quiting isn't always fatal to a case. Sometimes the Courts will treat a resignation as if it were a termination under the doctrine of constructive discharge. There are two ways to prove a constructive discharge: (1) either the employee was given an ultimatum to resign or get fired, or (2), the employee was in working conditions so terrible that any reasonable person would feel compelled to resign.

The ultimatum-type case is simple to prove, so long as the employee has some kind of email, text message, or other written proof of the ultimatum.

The working-conditions-type case, however, is always difficult. Usually, some demotion or extraordinary harassment must take place.

Courts weigh the following factors to determine constructive discharge: (1) demotion; (2) reduction in salary; (3) reduction in job responsibility; (4) reassignment to menial or degrading work; (5) reassignment to work under a younger supervisor; (6) badgering harassment, or humiliation by the employer calculated to encourage the employee's resignation; or (7) offers of early retirement or continued employment on terms less favorable than the employee's former status. Dediol v. Best Chevrolet, Inc., 655 F.3d 435, 444 (5th Cir.2011).

For example, in one case, the City of Meridian wanted to get rid of a chemist working at the water treatment plant. Their attorney told them they didn't have sufficient grounds to fire her. And so, instead, they reclassified her as a laboratory technician and drastically cut her pay to try to force her out. She resigned. The Court held that this was a constructive discharge. Loftin-Boggs v. City of Meridian, Miss., 633 F. Supp. 1323, 1327 (S.D. Miss. 1986). (The employee still lost the case, though.)

On the other hand, with only harassment to go on, these cases are usually losers. E.g., Simpson v. Alcorn State Univ., 27 F. Supp. 3d 711 (S.D. Miss. 2014). Sometimes, though, in just the right circumstances, a harassment-based constructive discharge claim can turn out to be a winner. E.g., Idom v. Natchez-Adams School Dist., 115 F. Supp. 3d 792 (S.D. Miss. 2015).

The upshot here is to be certain to understand the consequences of resignation. Some employers are very savvy at forcing an employee out in subtle ways that can be difficult to prove as a constructive discharge. Employees facing these hard choices may need to consult with an attorney for legal advice about their options.

Severance Agreements: Gift or Trap?

Severance agreements come in two basic types. The first type includes those negotiated in advance, as part of your original employment agreement. The second type includes those voluntarily offered by the employer at the time employment ends. The two are fundamentally different.

1. Contractual: the buy out or golden parachute severance agreement.

Again, the first type of severance to consider is the golden parachute. In this types of severance, everything is usually governed in your initial employment agreement. These are sometimes called a buy out because the contract basically requires the employer to make a significant payment in order to end the employment.

These are unquestionably good for the employee. First and foremost, they act as an important check on the ability of the employer to fire the employee without a good reason. If the employee is doing well, the employer will keep them on even if they might otherwise prefer to fire them, so that they can avoid the buyout.

And there isn't much of a downside for the employee. By law, they typically cannot be interpreted to destroy statutory rights to file suit for things that happen during employment.

Often, these kinds of agreements tie the payout to the length of the employee's tenure, giving them, for example, a month of salary for each year worked for the employer. This kind of arrangement serves both employer and employee well, because it encourages the employee to stay on with the company longer, but also gives the employee an infusion of cash when beginning retirement or moving to other work. (This is basically an amped-up version of the annual leave buy-out, a very common practice which will be the subject of a future post.)

If you are in a profession where your unique skills are in high demand, you may be in a position to bargain for one of these clauses. I highly recommend it - particularly when the employer is asking for a very restrictive non-compete agreement. It makes a lot sense. If the employer wants you to promise not to practice your profession for a year or more after leaving working for them, then they ought to provide a big enough severance package to help you through that time on the sidelines. This can be a perfectly reasonable trade.

At the same time, any contract you sign - particularly one as important as an employment agreement - should be reviewed by an experienced employment lawyer to make sure it is fair to you. The firm provides this service at a surprisingly reasonable rate.

2. Post-employment severance: the full release severance agreement.

More common - particularly among less highly-specialized work - is the severance agreement which is voluntarily offered by the employer when separating you from work, usually an involuntary separation.

These severance payments aren't required by contract, or by law, so you should be asking yourself: Why am I being offered this? Is it a gift?

Usually, the answer is no. Usually, these severance agreements are attached to what is called a full release of the employer for any liability for anything they ever did wrong at any time during or after your employment up until the date of signature.

Now, I don't want to paint the wrong picture for you. Usually, you aren't really giving anything up, because you don't have a valuable lawsuit against the employer. Usually you weren't hand-picked for this severance because you pose a particular worry to the employer. Usually this does not indicate anything about how concerned your employer is about any potential lawsuit you might have. Usually, this just means your employer is smart, and wants to cover themselves and avoid any unnecessary albeit groundless litigation.


But not always. I have found it increasingly common for employers to handpick a few people to offer these severance agreements to, people that they fear might pose a particular litigation risk. Although, again, this does not mean they actually fear the outcome of the litigation - necessarily - it means they've identified this person as someone that might want to sue. If so, this may also mean that they would be willing to offer you more to settle your disputes, and you would benefit from a bit of negotiation. Again, not always, but it is sometimes the case.

Regardless of the employer's intent, however, you should definitely review this agreement with a lawyer. These are completely different from the golden parachute. These are basically full-blown settlement agreements, where you sign away significant legal rights forever in exchange for a payment.

They may have a confidentiality clause, where you promise to say nothing about the existence of the agreement. This is an alarm bell that there may be more to this than meets the eye.

They may have a non-disparagement clause, where you promise not to say anything bad about the company or your bosses ever again. This is another alarm bell.

And they may have liquidated damages provisions, where you agree to pay them (and their attorney) if you breach the contract. Huge alarm bell.

Whatever the issue, you want to know what your are giving up before you sign one of these. Buy some time - tell them you really appreciate their generosity and very much want to take it (never hurts to be nice) but that you need a few days to go over it in detail first. Then call a lawyer, talk everything through, and make an informed decision. Again, the firm provides this service at a surprisingly reasonable rate.

3. Wait a minute, just one more: statutory WARN Act and COBRA violations

There is one more, but it isn't really severance. If your employer has more than 100 employee and is laying off more than 50 or so employees in a particular month, then you may be entitled to 60 days notice under the WARN Act. If, and only if, no such notice is given, you may be entitled to up to 60 days of what is essentially severance pay instead of notice.

In addition, if you have health insurance through your employer do not get COBRA rights notifications, then you may be owed up to $110 per beneficiary per day until the proper notice is given.

Again, these aren't exactly severance, but they can function in a similar way under certain special circumstances.

I also highly recommend this linked Forbes article, which has a lot of sound advice for employees facing a decision on severance packages if you are interested in reading more.


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