Austin, TX (Law Firm Newswire) June 9, 2021 – Understanding the effect of an employment agreement is crucial for both sides to the agreement.
Earlier this month, a Texas appellate court released an opinion in a case illustrating the importance of understanding the terms of an employment agreement. The case centered around a physician-employment contract that contained both an agreement not to compete and a buy-out option, through which the departing party could essentially buy their way out of the non-compete clause.
This case involves two parties, both physicians: Johnson and Sherman. In 2015, Johnson entered into an agreement with Sherman, under which Johnson would provide professional medical and administrative services for Sherman. The employment contract contained a non-compete agreement. However, the agreement also contained a buy-out provision, which allowed Johnson to avoid the non-compete clause’s obligations if she paid Sherman a year’s worth of her gross compensation.
About two years after the parties signed the initial agreement, Johnson gave Sherman notice that she intended to work with another party. Johnson agreed that she would pay Sherman $104,650 and signed a document indicating her intent to pay by September 15, 2017. However, when September 17 came, and Johnson had not yet paid, Sherman filed a breach of contract claim.
The disagreement came down to when the payment was due. According to Johnson, the original buy-out provision would have required her to pay Sherman the buy-out amount within five days of providing notice of her election. However, she also testified that her understanding of the amended agreement gave her 90 days to make full payment. Thus, when Sherman demanded payment just one or two days after she informed Sherman of her intention to depart, she refused.
The case went to trial, where Sherman obtained a judgment for the entire $104,650. Johnson appealed, raising several arguments. Primarily, Johnson’s issues focused on Sherman’s enforcement of the non-compete clause. However, the court rejected Johnson’s argument, finding that Sherman’s claim against her was based on a breach of contract, not a violation of a non-compete clause.
The court explained that there was no evidence that Johnson was going to compete with Sherman in her new business or that Sherman took any action to prevent Johnson’s future competition. Instead, the court characterized Sherman’s case against Johnson as involving her violation of the agreement reflected in the buy-out provision.
Johnson’s second issue involved an alleged lack of consideration between the parties pertaining to the second amended agreement. Johnson claimed that the second amendment was not a valid contract because it imposed no new obligations on Sherman that were not present in the original agreement. The court also rejected this claim, noting that “the second amendment eliminated Sherman’s right to terminate Johnson’s employment without cause and effectively extended Johnson’s employment until the date of the closing of the Baylor transaction.” The court rejected Johnson’s remaining claims, finding that the agreement between the parties was valid and enforceable. Ultimately, the court affirmed the judgment in Sherman’s favor.
The case illustrates the importance of thoroughly understanding an employment agreement before signing it, especially upon an employee’s departure. Both sides to an employment agreement are often eager to get the documents signed and begin what everyone hopes to be a mutually beneficial relationship. However, hurdles often arise in these complex business relationships, especially those involving doctors, lawyers, architects, accountants and engineers.
Austin business law attorney Gregory D. Jordan reminds professionals of the importance of consulting with an attorney before signing any employment agreement involving a non-compete clause. “It is better to know what you are getting into before creating any legal obligations,” Jordan explains, “this way, you know what your rights are and what you can – and more importantly – cannot do.”
At the Law Offices of Gregory D. Jordan, Attorney Jordan represents professionals and businesses in all fields, helping them navigate Texas contract disputes and other business-related issues. Attorney Jordan has over 30 years of relevant experience helping businesses confront the legal issues they face throughout Travis County and Central Texas. Contact the Law Offices of Gregory D. Jordan at http://www.theaustintriallawyer.com/.