Can an Employer Be Bound By a Non-Compete Agreement It Did Not Know Would Be Presented To Its Employees?

Non-Compete, Employment Agreement, Grant v Johnson, Michigan

by Mark C. Vanneste

What if an employee agrees to a non-compete clause but the employer did not realize it would be presented to the employee? It sounds unlikely, but would the employer be bound by those terms? Maybe. These were the circumstances in the United States District Court for the Eastern District of Michigan’s recent Eric Grant v Johnson Electric decision.

The First Non-Compete Agreement and the Subsequent “Pop-Up” Non-Compete Agreement

Eric Grant worked for Johnson Electric, a separately incorporated subsidiary of Johnson Electric Manufacturing (“JEMI”) based in Hong Kong. When Grant started with the company, he agreed to a non-compete clause that limited his ability to work for a competitor of Johnson Electric for a 12-month period after leaving the company.

A few years later, JEMI notified Johnson Electrics’ employees, including Grant, of a new platform to manage the parent company’s intellectual property. Employees were to access the new system and, upon first doing so, were confronted with a pop-up user agreement that would require acceptance before accessing the system. Grant accepted the agreement.

The pop-up user agreement included its own non-compete clause that was much different from the one Grant had originally agreed to. The new clause included a 24-month non-compete period but also required that Johnson Electric pay Grant his average monthly salary each month during that 24-month period.

About two years later, Grant left the company and requested the 24 months of compensation. Johnson Electric informed Grant that the pop-up user agreement applied to employees of its Hong Kong parent company only, and not to Johnson Electric’s North American employees. In fact, Johnson Electric claimed that it did not know that the non-compete clause would be presented to its employees at all and had no record of who clicked “agree” or “disagree” when confronted with the pop-up agreement.

Court Finds Questions of Fact for the Jury

Grant sued Johnson Electric claiming to be entitled to the 24 months of compensation. The parties filed cross-motions for summary judgment. Grant argued that the language of the pop-up agreement mandated 24 months of compensation, that he and Johnson Electric mutually assented to the agreement, and that the agreement was not exclusive to Hong Kong employees because such language was not found in the agreement. Johnson Electric argued that the agreement was not enforceable because it never assented to the agreement and that, even if it was a valid contract, Johnson Electric had not violated its terms.

Taking a closer look at the terms of the pop-up agreement’s non-compete provision, the Court found contradictory language regarding the 24 months of compensation. The Court ruled that a jury should look at extrinsic evidence to resolve the contradiction – how the agreement applied in the past, how the agreement applied to other Johnson Electric employees who left the company, deposition testimony of Johnson Electric’s executives, etc.

In regard to whether Johnson Electric assented to the agreement despite its assertion that it did not know it would be presented to its employees, the Court again determined this best answered by the jury. Grant had not presented any evidence that Johnson Electric knew of the pop-up agreement or that it knew the agreement would be presented to its employees. On the other hand, Johnson Electric presented no evidence that the agreement, in fact, only applied to Hong Kong employees. Since the Court decided to leave this question with the jury, extrinsic evidence could lead the jury to decide that Johnson Electric is bound by the terms of an agreement it had no idea would be presented to its employee.

The Lesson

Large employers dealing with multiple layers of parent companies, subsidiaries, divisions, etc. likely have differing employment agreements for employees of the different entities. Great care should be taken to prevent an agreement intended for one entity from being presented to employees of another. Even if accidental, this case tells us that the employer may be left to the whims of a jury as to whether the agreement is enforceable against the employer.

Mark C. Vaneste is an associate at Howard & Howard’s Royal Oak, MI, office. He concentrates his practice in commercial litigation, with a focus on supplier-focused automotive litigation, contract disputes, class actions, construction, and real estate.

One thought on “Can an Employer Be Bound By a Non-Compete Agreement It Did Not Know Would Be Presented To Its Employees?

  1. Pingback: Monthly Wrap Up (May 8, 2018): Noteworthy Trade Secret and Non-Compete Cases, Developments and Posts | The Trade Secret Litigator

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