Quirky Question # 179 – Restrictive Covenants in an Expired Term Contract
Our company has a sales force composed of individuals located throughout the U.S. When we hire sales employees, we use a term employment agreement, typically of three years’ duration. Our employment contracts include post-employment restrictive covenants, the most important of which are non-competes and non-solicits with respect to our customers. Each restrictive covenant last two years.
We try to negotiate new agreements for the sales employees who are doing a good job. Our goal is to get the new agreements in place at least one month before the existing agreements expire. Sometimes, however, things fall through the cracks and we find ourselves negotiating a new agreement following the expiration of the former contract. In the interim, the employees usually just keep working for us under the terms of the prior agreement. Then, if there are compensation changes, we make them retroactive to the date the prior contract expired.
One of our best salespeople recently advised us she was resigning to join a competitor. Her contract apparently expired about three months ago but we failed to notice and did not negotiate with her regarding a new agreement. Nevertheless, she continued working under the terms of her old contract and did not raise any concerns.
When she told us she was leaving, we tried to sweeten the offer to persuade her to stay. We were not successful. We then told her we expected her to abide by the two-year non-compete and the two-year non-solicit. Her response was that those provisions expired with the contract’s expiration. That can’t be right, can it? The contract specifically provides that the restrictive covenants continue for two years after the contract’s termination. Answer→