United States: Take Care In Drafting: Meschino v. Frazier Industrial Co. Is A Cautionary Tale For Employers

In Meschino v. Frazier Industrial Co., Civil No. 15-10327-RGS, 2015 WL 7295463 (D. Mass. Nov. 18, 2015), Judge Stearns held that an employment agreement superseded an earlier employment agreement and a separate earlier confidentiality and non-compete agreement. A 2005 employment agreement provided that the employee would be required to execute a separate confidentiality and non-compete agreement. The employee executed both agreements in 2005. Notably, the separate confidentiality and non-compete agreement was not expressly incorporated into the 2005 employment agreement, and the employment agreement did not contain an integration clause indicating that it was the final and complete agreement regarding the terms of employment.

In 2012, in connection with a promotion, the employee signed a new employment agreement but not a new confidentiality and non-compete agreement. Again, there was no integration clause in the 2012 employment agreement. In an action by the employee for non-payment of commissions, the employer counterclaimed for breach of the 2005 non-compete and confidentiality agreement in connection with the public disclosure and filing of the employee's commission terms in the course of the litigation. The Court dismissed the employer's counterclaim, concluding that the failure of the 2012 employment agreement to refer to the 2005 confidentiality and non-compete agreement indicated a clear intent that the 2012 agreement would supersede both of the 2005 agreements. The opinion rests heavily on the 2012 agreement's provision that "[t]he following are the terms of employment . . ."  (emphasis added).

Analyzing the relevant contract provisions, Judge Stearns concluded that the 2012 employment agreement was the only operative document: "[T]here is no hint of such an intention [to preserve the 2005 confidentiality and non-compete agreement] in the plain language of the 2012 employment agreement that [the employer] itself drafted." Rather, "[t]he 2012 agreement states on its face that it contains 'the terms of [the employee's] employment' without any reservation or reference to any other document or agreement." (emphasis in Meschino, not in employment agreement). In concluding that the 2012 employment agreement superseded the confidentiality and non-compete agreement, Judge Stearns relied on principles of contract interpretation and did not address the employee's argument that the promotion itself constituted a material change that vitiated the effectiveness of his prior confidentiality agreement.

In the absence of integration clauses in either the 2005 or 2012 employment agreements and in the absence of any language incorporating the confidentiality and non-disclosure agreement into the 2005 employment agreement, the Court's contract interpretation could be readily disputed. The opinion provides no analysis of the parties' intention to integrate the 2005 confidentiality and non-compete agreement with the 2005 employment agreement. The 2005 employment agreement merely references the standalone confidentiality and non-compete agreement without integrating or incorporating it. As others have commented, the outcome likely rested on the word "the" in the 2012 Employment Agreement: "The following are the terms of employment: . . ." (emphasis added); see also Eric T. Berkman, Noncompete nullified by new employment contract, Mass. Lawyers Weekly (Dec. 17, 2015) (John R. Bauer, a Boston litigator is quoted as saying: "I think [the Meschino] decision rested . . . in particular on the single word 'the.'"). One word is a thin reed on which to supersede a non-disclosure and non-compete agreement, and an especially weak basis when there was no integration clause and no extrinsic evidence of an intent to integrate the two 2005 agreements.

* * *

The holding in Meschino raises questions about the circumstances under which an employer can rely on standalone confidentiality and non-compete agreements when subsequent employment agreements are executed. In Meschino, the mere reference to the separate confidentiality and non-compete agreements in the first employment agreement—even absent an integration clause or language expressly incorporating the non-compete agreement—raised the risk that a subsequent employment agreement could supersede the separate confidentiality agreement by its mere failure to reference the prior standalone agreement. Many employers may be likely to believe that separately executed general non-disclosure and non-competition agreements remain enforceable despite a new employment agreement dealing exclusively with compensation and term of employment. Even without the reference to the separate confidentiality and non-compete agreement in the 2005 employment agreement, this Court may very well have concluded nonetheless based on the intent of the parties that the subsequent employment agreement which referred to "the terms of employment" superseded the prior non-disclosure and non-compete.

Meschino raises new risks for employers executing new employment agreements. Where there are contemporaneously executed general employment and non-compete/non-disclosure agreements at the commencement of employment, it may be advisable to include language in the non-compete/non-disclosure agreement indicating that it is independent of the employment agreement and survives the termination or modification of the employment agreement. Alternatively or additionally, employers may reference the existing non-compete and non-disclosure in the new employment agreement. If Meschino is any indication of a trend in employment contract interpretation, care must be taken to ensure the preservation of non-competition and even—as Meschino shows—basic non-disclosure obligations.

Originally published March 10, 2016

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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