Words matter: “ANY REASON” may mean “SOME REASON” in triggering a post-employment restrictive covenant
Words matter. This is especially true in the context of post-employment restrictive covenants, which are generally disfavored by courts. The court in Bishop v. Lakeland Animal Hospital, P.C., 268 Ill. App. 3d 114 (2d Dist. 1994) exemplifies this issue in its conclusion that termination of employment for “any reason” for triggering a post-employment restrictive covenant may actually mean for “some reason."
This article assesses how the lack of consistency of triggering verbiage will impact the applicability and ultimate enforceability of a post-employment restrictive covenant. We will dissect paragraphs of a hypothetical, but not uncommon, employment agreement to illustrate the argument posited in our article. Before we discuss Bishop, we start first with the basic premise under Illinois law and most all other jurisdictions that “[t]he primary objective in construing a contract is to give effect to the intent to the parties.” Gallagher v. Lenart, 226 Ill.2d 208 (2007). The court “must initially look to the language of a contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties’ intent.” Id. Similarly, “a contract must be construed as a whole, viewing each part in light of the others. Id.
CHOOSE YOUR WORDS CAREFULLY
Our example employment agreement contains a not uncommon lack of consistency in the verbiage of triggering events, and illustrates how and why “any reason” can mean “for some reason” as to the enforceability of a post-employment restrictive covenant. Note the varying triggering verbiage (“for any reason or no reason;” “for cause;” “without any reason;” and “for any reason”) used in the following paragraphs of our example employment agreement, drafted by the employer:
- Paragraph 1.1 of the Employment Agreement provides that the initial term of the Employment Agreement is for two years, through December 31, 2015 (“Initial Term”) with automatic renewals for consecutive one year terms (“Renewal Term”) unless either party gives the other party at least 90 days written notice prior to the expiration of the Initial Term or any Renewal Term. Non-renewal of the Employment Agreement may be by either party for any reason or no reason.
- 2.3. Termination. Notwithstanding anything contained herein to the contrary Employer may terminate this Agreement (i) immediately at any time for the reasons set forth in Paragraph 11.2 [for cause] below or otherwise for breach of this Agreement by Physician and/or (ii) without any reason upon ninety (90) days prior written notice to Physician; … Physician may terminate this Agreement upon ninety (90) days prior written notice to Employer.
- Paragraph 8.3 provides that should Physician’s employment terminate for any reason or no reason, Physician agrees to obtain professional liability insurance.
- Paragraph 9.4 of the Employment Agreement provides:
Covenant Not to Solicit Patients. For a period of two (2) years following the termination of this Agreement and Physician’s employment with Employer for any reason, Physician shall not call, contact or solicit patients of Employer to whom he provided medical services during his employment with Employer.
- Paragraph 9.5 of the Employment Agreement provides as follows:
Covenant Not to Solicit Employees. The Physician agrees that for a period of two (2) years following the termination of this Agreement and Physician’s employment with Employer for any reason, Physician shall not solicit, employ or cause to be employed with Physician any employee or independent agent of Employer.
- Paragraph 9.6 of the Employment Agreement provides as follows:
Covenant Not to Compete. During Physician’s employment with Employer and for a period of two (2) years after termination of this Agreement and Physician’s employment with Employer for any reason, Physician shall not provide medical services in any form or manner.
- 11.2. Immediate Termination. Notwithstanding anything set forth herein to the contrary, Employer may terminate this Agreement and Physician’s employment hereunder immediately upon the occurrence of any of the following: [for cause]
- A. The Disability of Physician.
- B. The Physician’s loss, restriction, suspension or failure to obtain a professional license to practice medicine; …
The sample agreement uses several different descriptors for termination and the predicate events triggering the post-employment obligations/restrictions, i.e., termination for “any reason or no reason;” “for cause;” “without any reason;” and “for any reason.” So how do you determine when the post-employment restrictive covenants are triggered? Non-renewal or termination of the employment agreement could occur for any reason, or no reason, for specific reasons, or without any reason. The employer, which drafted our example agreement, clearly had different meanings in mind for its characterization of the predicate event(s) as to each triggering event. The agreement provides that upon the physician’s termination of employment for “any reason or no reason,” the physician is obligated to obtain malpractice insurance. The agreement also contains non-solicitation and non-competition provisions each of which applies where the agreement terminates “for any reason.” Conspicuous by its absence as to foregoing triggering event for the non-solicitation and non-competition provisions is the verbiage “or no reason.”
The conundrum of whether the agreement prohibits the physician from competing with the employer arises when the physician voluntarily terminates the agreement upon 90 days notice which is permitted under Paragraph 1.1 of the example agreement. Viewing the contract as a whole and viewing each part in light of the others, a convincing argument can be made that it was the employer’s intent that the triggering event of “for any reason” of post-employment restrictive covenants in paragraph 9 are for a reason articulated in Par. 11.2 i.e. for cause. While at first blush this may seem a nuanced argument, a similar issue was presented to the court in Bishop v. Lakeland Animal Hospital, P.C., 268 Ill. App. 3d 114 (2d Dist. 1994).
In Bishop, the parties entered into an employment agreement providing that either party “may terminate employment with or without cause” on 60 days notice. Id. at 115. The agreement also contained a non-compete provision, which provided that “on the termination of his/her employment with the Employer for any cause” the employee could not practice veterinary medicine within 15 miles of the city of McHenry for four years. Id. After defendants terminated the employee without cause, the employee filed a declaratory judgment action seeking a declaration that the non-compete was unenforceable. Id.
The appellate court held that the non-compete provision did not apply because the defendant had terminated the plaintiff “without cause,” while the non-compete applied if the defendant terminated the plaintiff “for any cause.” Id. at 117. The court held that the term “for any cause” was ambiguous because it could be “construed to mean for any cause whatsoever (including no specific cause)” or “to require some cause to exist before its provisions would apply.” Id. The court noted that, “when defendants intended that no cause be required to invoke a particular provision, they utilized ‘with or without cause.’” Id. Because the defendant had drafted the agreement, the court applied settled law that any ambiguities must be resolved against the drafter and held that the plaintiff’s interpretation must prevail. Id.
Construing the example agreement as a whole and viewing each part in light of the others, Bishop applies with full force in our example. Section 2.3 of the agreement provides that physician’s employment can end either (1) “immediately at any time for the reasons set forth in paragraph 11.2 below”; or (2) “without any reason upon ninety (90) days prior written notice to by either Defendant to Physician or Physician to Defendant.” Thus, like Bishop, the agreement sets forth two types of termination: (1) termination for any enumerated reason; and (2) termination for no reason. And, like in Bishop, the restrictive covenants provision apply only where physician was terminated “for any reason,” i.e., for cause.
Had the employer wanted the restrictive covenants to cover scenarios where physician was terminated without cause, or where either party chose not to renew the agreement, it could have done so by providing that those provisions would apply where the physician was terminated “for any reason or no reason.” Indeed, the employer did exactly that in Paragraph 8.3 of the agreement as to the physician’s obligation to obtain malpractice insurance should the agreement terminate for any reason or no reason. As the Bishop court held, the fact that the employer chose to use “for any reason or no reason” in one part of the agreement, but used “for any reason” in Paragraphs 9.4, 9.5 and 9.6 demonstrates that “for any reason” and “for any reason or no reason” “appear to have different meanings, at least in the minds of the drafters.” Bishop, 268 Ill. App. 3d at 117.
While at first blush the post-employment restrictive covenants in the agreement would appear to support an argument that if the physician’s employment terminates for any reason, (i.e., any reason whatsoever), the physician is prohibited from competing with the employer within the geographic area for the temporal period. Upon closer examination of the agreement as a whole however, it is evident that the employer ascribed different meanings to the various triggering events that supports the conclusion that the post-employment restrictions only apply if physician’s employment terminates for some reason, i.e., for cause. Choose your words carefully and be consistent in their usage to avoid any arguments as to the intent of the parties to the agreement.