BFV Perspectives, Noncompete & Trade Secrets, | Sep 03, 2014

Merger Clauses in Non-Compete Agreements

Employees will try to avoid the enforcement of non-competes in a variety of ways. In Mapei Corporation v. Prosser, — S.E.2d —, 2014 WL 3282090 (Ga. App. July 9, 2014), an employee was able to avoid his non-compete because he signed a subsequent restrictive covenant agreement which did not contain a non-compete, but which contained a merger clause.

Stephen Prosser became employed as a chemist for Mapei Corporation (“Mapei”) in 2009. In June of 2011, he signed an agreement which contained a non-disclosure covenant, a covenant prohibiting him from soliciting employees and customers, and a non-compete. The agreement also contained a superseding-agreement clause which stated that “…[t]his agreement totally replaces all prior contractual agreements or understandings between us, whether oral or written, about confidential information or any other subject matter contained herein.”

Mr. Prosser signed another agreement a week later. The second agreement was similar in some respects to the first agreement. It contains a non-disclosure agreement as well as related acknowledgements regarding Mapei’s confidential information. However, the agreement did not contain a non-compete or a non-solicitation covenant. The agreement also contained the same superseding-agreement clause.

Mr. Prosser had signed the first agreement on June 7, 2011. He signed the second agreement on June 14, 2011; however, he did not deliver the first signed agreement until he physically handed it to his boss in July 2011. When he delivered the signed agreement, he did not mention that he had signed the second agreement which did not contain the non-compete.

The Court of Appeals noted, as a threshold matter, that given the superseding-agreement clauses in the agreements, the agreement which became effective later replaced the agreement which had become effective first. Mapei relied on the fact that the first agreement was delivered after Mr. Prosser had signed the second agreement to argue that the first agreement was in effect, not the second. The Court of Appeals rejected this argument, noting that Mr. Prosser’s acceptance of each contract was the date on which each contract was made. And this acceptance occurred on the day he signed the contract. Therefore, the second contract replaced the first contract.

The Court of Appeals also rejected Mapei’s argument that he ratified the first contract by accepting compensation thereunder, noting that there was nothing in the record indicating that he accepted compensation under one contract or the other. The Court also rejected Mapei’s argument that the second contract should have been reformed on the basis of a mutual mistake of fact because the parties had intended to enter into an agreement containing a non-compete.

Based on these rulings, the Court of Appeals affirmed the trial court’s ruling that because the two agreements concerned the same or similar subject matters, the second agreement replaced the first agreement in its entirety. Because the first agreement containing the non-compete was merged into the second agreement omitting the non-compete, the Court of Appeals affirmed the trial court’s judgment that Mr. Prosser had not breached the non-compete.

This case demonstrates that employers must be cognizant when including superseding-agreement clauses in agreements containing restrictive covenants. Doing so runs the risk of unintentionally “wiping out” restrictive covenants or other obligations which an employer may wish to keep in effect.

(Click here for another blog entry discussing the effect of a merger clause in a restrictive covenant agreement and which reaches a different result than the Court of Appeals did in Mapei).

BFV Perspectives, Noncompete & Trade Secrets, | Sep 03, 2014
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.