Employer's Prior Material Breach of Non-Compete Dooms Enforcement

Posted: Monday, July 20, 2009

By: Joshua C. Dickinson

Topic: Agreements

T he Eighth Circuit Court of Appeals Enforces a Non-Compete Agreement Against Employer Because it Contained Mutual Obligations Breached by Employer.

By:      Joshua C. Dickinson

The Eighth CircuitCourt of Appeals recently enforced a non-compete agreement which contained mutual obligations, affirming the district court's grant of summary judgment to a former employee because the employer failed to make monthly payments to the former employee as required under the terms of the non-compete.  Bannister v. Bemis Company, Inc., __ F.3d ____, 2009 WESTLAW 454725 (8th Cir. Feb. 25, 2009). 

Roger Bannister ("Bannister") was Director of Technical and Product Development for Bemis Company, Inc., ("Bemis"), and had worked for Bemis since 1991.  Bannister and Bemis entered into a NCA in December 2000.  The agreeement restricted Bannister from working for any of Bemis' competitors for 18 months following his termination.  Under the non-compete agreement, if Bannister was "unable to obtain employment consistent with [his] abilities and education solely because of the provisions of [the agreement which prohibited his employment with a Competing Organization], such provisions . . . continue[d] to bind [him] only as long as Bemis, in its sole discretion, . . . made payments to him equal to his monthly base salary at the time of his termination."  Bannister, 2008 WL 454725, at *1.  The non-compete mandated that Bannister provide Bemis with a detailed written account of his "good faith and aggressive effort[s]" to obtain employment, as well as a sworn statement that although he had made a good faith and aggressive job search, the agreement was the sole reason for his unemployment.  Id.  Bemis was relieved of its obligation to make a monthly payment to Bannister for any month in which Bannister failed to provide the requisite documentation.  Id.

Bemis terminated Bannister in January 2005.  In February 2005, Bannister requested payment from Bemis under the the parties' agreement.  Along with his request for payment, Bannister enclosed a copy of a letter from Mondi, a Bemis competitor, in which Mondi expressed interest in hiring Bannister, but knew he was subject to the Bemis' non-competition agreement.  Bemis did not reply to this request.  Bannister renewed his request  in March 2005 an dalso enclosed a written log detailing his job search efforts and his sworn statement.  Bemis replied, denying payment but offering to release Bannister from the non-compete agreement as to all but one of its competitors – Mondi – the competitor that had expressed interest in hiring Bannister.

Bannister eventually obtained employment with a different Bemis competitor in October 2005.  Subsequently, Bannister brought his breach of contract claim against Bemis in the United States District Court for the District of Minnesota seeking payment under the agreement for the nine months he was unemployed.  The District Court, applying Arkansas law, granted Bannister's motion for summary judgment and awarded him his full damages.  Bemis appealed.

The Eighth Circuit affirmed the district court's decision finding that Bannister met his obligations under the non-compete agreement up to the time that Bemis breached the contract.  The Court found that Bemis breached the unambiguous agreement when it chose to enforce the provision, even if only as to a single competitor, but refused to pay Bannister's salary.  The Court found that any subsequent breach by Bannister was excused by Bemis' prior failure to perform its contractual obligations, a failure which released Bannister from his mutual obligations under the contract.

This decision reaffirms that a non-competition agreement is enforceable where the agreement imposes mutual obligations on both parties.  Further, the decision reaffirms that an employer who wants to enforce an employee's restrictive covevant, must understand that a well drafted agreement, which imposes obligations on both the employer and employee, is enforceable against the employer as well as the employee.