HR Management & Compliance

Termination Agreements: Recent Case Says Commonly Used Language Exposes Employers To New Risks

When you ask an employee to sign an employment termination agreement in exchange for severance benefits or other payments, you probably include language making clear that the agreement supersedes any prior understandings there may have been between you and the employee. But a new case suggests this commonly used provision has some significant hidden risks—and could even undermine efforts you’ve made to protect valuable trade secrets. We’ll look at the ruling and suggest language you can use to help ensure your agreements provide the protection you need.

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Employee Agrees To Termination

Mark Lebeck worked as a sales manager for Carboline Co., a Missouri manufacturer of products for the power industry. Lebeck was given the option of relocating or terminating his employment with the company. He chose to leave and signed a standard termination agreement.

The contract included a clause stating it “constitutes the entire agreement between employer and Mr. Lebeck and supersedes all prior understandings, whether oral or written, between employer and Mr. Lebeck.” This type of language is usually added so an employee can’t later claim there were other promises made that weren’t spelled out in the agreement.

Company Sues For Violation Of Non-Compete Clause

When Lebeck later went to work for a competitor, Carboline sued.

The company claimed Lebeck violated the terms of a previous contract he had signed prohibiting him from disclosing confidential information and barring him from working for a competitor for two years.

But Lebeck responded that the termination agreement canceled out those earlier promises, and the court agreed. Even though the confiden-tiality and non-competition clauses weren’t specifically mentioned in the termination agreement, the court concluded the agreement’s plain language invalidated any other promises that might have been made.

Trade Secrets Could Be At Risk

Although non-competition agreements like the one Carboline used are illegal in California, California employers frequently have workers sign agree- ments promising not to disclose trade secrets or other confidential information. But the court’s ruling suggests that if you’re not careful, your termination agreements could inadvertently void those prior contracts just when they’re most important—when an employee leaves and begins working for someone else.

To protect yourself, make sure your termination agreements specifically say that any trade secret and confidentiality agreements remain in effect. For example, if you have language providing that the termination agreement is the entire agreement between you and the employee and that it supersedes all prior understandings, be sure to add: “except for [specify agreement, i.e., the trade secret and confidentiality agreement dated _____ ], which shall continue to remain in full force and effect.”