'Independent Covenant' Language

Case Law

It is well settled that under basic principles of contract law a party cannot enforce a restrictive covenant if it is in material breach of other terms of the agreement. However, where the parties clearly intended to make the restrictive covenant “independent” of the other covenants in the agreement, a court may not bar the former employer from enforcing the agreement, even in the face of a prior beach by the former employer, because doing so would be inconsistent with the parties' written agreement.

For example, in the recent case of Richland Towers, Inc. v. Denton, 139 So.2d 318 (Fla. 2nd DCA 2014), the trial court denied the former employer's request for a temporary injunction on the grounds that certain bonuses were not paid to the former employees. The appellate court reversed. The appellate court first stated that whenever possible, an agreement should be construed according to its plain language. Id. at 321. The court also acknowledged the general proposition that covenants in an agreement are considered dependent unless trumped by a contrary intention expressed in an agreement. Id. The court ultimately determined that the parties included such an express intention that the covenants were independent by stating:

Covenants Independent. Each restrictive covenant on the part of the Employee set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Corporation and the Employee may have, fully performed and not executory, and the existence of any claim or cause of action by the Employee against the Corporation, whether predicated upon another covenant or provision of the Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of any other covenant.

Similarly, in another Florida case, Reliance Wholesale, Inc. v. Godfrey, 51 So.3d 561 (Fla. 3rd DCA 2010), the appellate court reversed the trial court's denial of a former employer's motion for temporary injunction because notwithstanding evidence that the former employees were not paid earned commissions, the parties' agreement demonstrated that the “non-compete” clause was an independent and not a dependent covenant. Id. at 565. The provision at issue in Godfrey provided:

The covenants set forth herein shall be construed as agreements independent of any other provision in any other agreement, by, between, among, or affecting Reliance Medical Wholesale, Inc. and Employee, and the existence of any claim or cause of action of Employee against Reliance Medical Wholesale, Inc., whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this agreement .

Id. The court concluded that the former employer's purported “prior breach” was not a valid or viable defense to the issuance of a temporary injunction. Id.

Not surprisingly, the universally accepted concept that courts should enforce, and not rewrite, parties' contract language has resulted in decisions around the country consistent with the Florida decisions discussed above.

California Law

The former employer's breach of the employment agreement by wrongfully terminating the employee did not excuse the employee from keeping trade secrets confidential. There was nothing in the record to suggest that the two separate agreements imposed dependent obligations or that the performance of the one was a condition of an obligation to perform the other. If the two agreements “imposed dependent obligations” or provided that “the performance of the one was condition of an obligation to perform the other” a different result may have been required. Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 49, 6 Cal. Rptr. 2d 602 (1992), modified (Apr. 14, 1992).

Georgia Law

An alleged wrongful termination by a former employer was not a bar to enforcement of a restrictive covenant when the parties' agreement provided, “These covenants [restrictive] on the part of the employee shall be construed as an agreement independent of any other provision in this agreement, and the existence of any claim or cause of action of the employee against the company whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants.” Orkin Exterminating Co. v. Gill, 222 Ga. 760, 762-63, 152 S.E.2d 411, 413 (1966).

Mississippi Law

A clause that stated “[t]his covenant on the part of the Employee shall be construed as an agreement independent of any other provision of this agreement; and the existence of any claim or cause of action of the Employee against the Company, whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement by the Company of this covenant” may permit the former employer to enforce the restrictive covenant notwithstanding that the former employer's demotion of the employee constituted a material breach of the employment contract. Hensley v. E. R. Carpenter Co., 633 F.2d 1106, 1110 (5th Cir. 1980).

Indiana Law

A podiatry clinic's failure to pay a car allowance to a former employee did not preclude enforcement of a restrictive covenant because it contained a provision that the non-competition agreement “shall be construed as independent of any other provision of this Contract and shall survive the termination of this Contract. The existence of any claim or cause of action of Employee against Corporation, whether predicated on this Contract or otherwise, shall not constitute a defense to the enforcement by Corporation of this Restrictive Covenant.” Central Indiana Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (Ind. 2008).

Texas Law

A former employee claimed that the former employer was barred from enforcing the restrictive covenant because the former employer materially breached the contract by failing to pay severance, by failing to provide 90 days' written notice prior to termination, by refusing to buy the former employee's home in accordance with the contract, and by refusing to issue stock. The appellate court disagreed because the agreement provided that, “This covenant on the part of Manager shall be construed as an agreement independent of any other provision of this Contract; and the existence of any claim or cause of action of Manager against Employer, whether predicated on this Contract or otherwise, shall not constitute a defense to the enforcement by Employer of this covenant.” French v. Cmty. Broad. of Coastal Bend, Inc., 766 S.W.2d 330, 332-33 (Tex. App. 1989), writ dismissed w.o.j. (Sept. 6, 1989).

Key Tips

In accordance with the guidance provided by the above legal authority, in order to substantially decrease the likelihood that a “prior breach” defense will defeat a request for a temporary injunction in the restrictive covenant context, it is recommended that an employer:

• Review its restrictive covenant agreement to determine whether it includes an “independent covenant” or “severability” provision that will be enforced under the operative law.
• Review its restrictive covenant agreement to make sure that no other language in the restrictive covenant agreement conflicts with the “independent covenant” or “severability” provision. Loose language in the substance of the restrictive agreement and/or the “recitals” can allow the former employee to argue that the restrictive covenant is ambiguous on the question of whether the covenants are independent or dependent. Moreover, if the employee is requested to simultaneously execute additional agreements, make sure that all of the agreements, read together, unambiguously provide that the restrictive covenant is independent of all of the parties' other obligations.
• If the law of the state that governs its restrictive covenant does not provide clear guidance on whether an “independent covenant” or “severability” provision will be enforced, consider incorporating a choice of law provision in your restrictive covenant in favor of a state law that will enforce such provisions.

Lyle Shapiro is a shareholder with the Miami, FL, office of law firm Richman Greer. He may be reached at [email protected].

It is a defense that has become perfunctory in restrictive covenant litigation ' “my former employer is barred from enforcing the restrictive covenant because it committed a prior breach of the agreement!” Most often, the former employee will claim that the former employer breached the employment agreement by failing to pay wages, salary, bonuses or other sums, which renders the entire employment agreement, including the restrictive covenant, unenforceable. When such a defense is raised, an injunction hearing that should focus on the former employee's wrongful post-employment conduct instead often digresses into a hearing at which an argument about what compensation agreement existed and whether the former employer breached that agreement takes place instead.

By the end of injunction hearing, the former employee has often successfully muddied the water enough that the former employer has not established a “substantial likelihood of success on the merits” on its restrictive covenant claim, a showing that is generally required for entry of an injunction.

The above scenario plays out time and again in courts around the country. Yet, by simply incorporating a clear and unambiguous “independent covenant” or “severability” provision in the restrictive covenant agreement, an employer may be able to avoid the “prior breach” defense altogether and be on its way to the injunction to which it is entitled.

Case Law

It is well settled that under basic principles of contract law a party cannot enforce a restrictive covenant if it is in material breach of other terms of the agreement. However, where the parties clearly intended to make the restrictive covenant “independent” of the other covenants in the agreement, a court may not bar the former employer from enforcing the agreement, even in the face of a prior beach by the former employer, because doing so would be inconsistent with the parties' written agreement.

For example, in the recent case of Richland Towers, Inc. v. Denton , 139 So.2d 318 (Fla. 2nd DCA 2014), the trial court denied the former employer's request for a temporary injunction on the grounds that certain bonuses were not paid to the former employees. The appellate court reversed. The appellate court first stated that whenever possible, an agreement should be construed according to its plain language. Id. at 321. The court also acknowledged the general proposition that covenants in an agreement are considered dependent unless trumped by a contrary intention expressed in an agreement. Id. The court ultimately determined that the parties included such an express intention that the covenants were independent by stating:

Covenants Independent. Each restrictive covenant on the part of the Employee set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Corporation and the Employee may have, fully performed and not executory, and the existence of any claim or cause of action by the Employee against the Corporation, whether predicated upon another covenant or provision of the Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of any other covenant.

Similarly, in another Florida case, Reliance Wholesale, Inc. v. Godfrey , 51 So.3d 561 (Fla. 3rd DCA 2010), the appellate court reversed the trial court's denial of a former employer's motion for temporary injunction because notwithstanding evidence that the former employees were not paid earned commissions, the parties' agreement demonstrated that the “non-compete” clause was an independent and not a dependent covenant. Id. at 565. The provision at issue in Godfrey provided:

The covenants set forth herein shall be construed as agreements independent of any other provision in any other agreement, by, between, among, or affecting Reliance Medical Wholesale, Inc. and Employee, and the existence of any claim or cause of action of Employee against Reliance Medical Wholesale, Inc., whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this agreement .

Id. The court concluded that the former employer's purported “prior breach” was not a valid or viable defense to the issuance of a temporary injunction. Id.

Not surprisingly, the universally accepted concept that courts should enforce, and not rewrite, parties' contract language has resulted in decisions around the country consistent with the Florida decisions discussed above.

California Law

The former employer's breach of the employment agreement by wrongfully terminating the employee did not excuse the employee from keeping trade secrets confidential. There was nothing in the record to suggest that the two separate agreements imposed dependent obligations or that the performance of the one was a condition of an obligation to perform the other. If the two agreements “imposed dependent obligations” or provided that “the performance of the one was condition of an obligation to perform the other” a different result may have been required. Vacco Indus., Inc. v. Van Den Berg , 5 Cal. App. 4th 34, 49, 6 Cal. Rptr. 2d 602 (1992), modified (Apr. 14, 1992).

Georgia Law

An alleged wrongful termination by a former employer was not a bar to enforcement of a restrictive covenant when the parties' agreement provided, “These covenants [restrictive] on the part of the employee shall be construed as an agreement independent of any other provision in this agreement, and the existence of any claim or cause of action of the employee against the company whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants.” Orkin Exterminating Co. v. Gill , 222 Ga. 760, 762-63, 152 S.E.2d 411, 413 (1966).

Mississippi Law

A clause that stated “[t]his covenant on the part of the Employee shall be construed as an agreement independent of any other provision of this agreement; and the existence of any claim or cause of action of the Employee against the Company, whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement by the Company of this covenant” may permit the former employer to enforce the restrictive covenant notwithstanding that the former employer's demotion of the employee constituted a material breach of the employment contract. Hensley v. E. R. Carpenter Co. , 633 F.2d 1106, 1110 (5th Cir. 1980).

Indiana Law

A podiatry clinic's failure to pay a car allowance to a former employee did not preclude enforcement of a restrictive covenant because it contained a provision that the non-competition agreement “shall be construed as independent of any other provision of this Contract and shall survive the termination of this Contract. The existence of any claim or cause of action of Employee against Corporation, whether predicated on this Contract or otherwise, shall not constitute a defense to the enforcement by Corporation of this Restrictive Covenant.” Central Indiana Podiatry, P.C. v. Krueger , 882 N.E.2d 723 (Ind. 2008).

Texas Law

A former employee claimed that the former employer was barred from enforcing the restrictive covenant because the former employer materially breached the contract by failing to pay severance, by failing to provide 90 days' written notice prior to termination, by refusing to buy the former employee's home in accordance with the contract, and by refusing to issue stock. The appellate court disagreed because the agreement provided that, “This covenant on the part of Manager shall be construed as an agreement independent of any other provision of this Contract; and the existence of any claim or cause of action of Manager against Employer, whether predicated on this Contract or otherwise, shall not constitute a defense to the enforcement by Employer of this covenant.” French v. Cmty. Broad. of Coastal Bend, Inc. , 766 S.W.2d 330, 332-33 (Tex. App. 1989), writ dismissed w.o.j. (Sept. 6, 1989).

Key Tips

In accordance with the guidance provided by the above legal authority, in order to substantially decrease the likelihood that a “prior breach” defense will defeat a request for a temporary injunction in the restrictive covenant context, it is recommended that an employer:

• Review its restrictive covenant agreement to determine whether it includes an “independent covenant” or “severability” provision that will be enforced under the operative law.
• Review its restrictive covenant agreement to make sure that no other language in the restrictive covenant agreement conflicts with the “independent covenant” or “severability” provision. Loose language in the substance of the restrictive agreement and/or the “recitals” can allow the former employee to argue that the restrictive covenant is ambiguous on the question of whether the covenants are independent or dependent. Moreover, if the employee is requested to simultaneously execute additional agreements, make sure that all of the agreements, read together, unambiguously provide that the restrictive covenant is independent of all of the parties' other obligations.
• If the law of the state that governs its restrictive covenant does not provide clear guidance on whether an “independent covenant” or “severability” provision will be enforced, consider incorporating a choice of law provision in your restrictive covenant in favor of a state law that will enforce such provisions.

Lyle Shapiro is a shareholder with the Miami, FL, office of law firm Richman Greer. He may be reached at [email protected].