An employee who had executed a two-year non-compete was let go.  He returned to work 10 days later but was not asked to sign a new agreement.  More than two years after his return, he was terminated and became an employee of a competitor.  A lawsuit seeking to enforce the non-compete was dismissed on the ground that it had expired.

Summary of the Case

Helmuth, like all employees of Nightingale Home Healthcare, signed a non-competition covenant with a term of two years from the date of termination.  He was fired in mid-October 2009 but was recalled 10 days later.  He was not asked to sign a new covenant.  In March 2012, his employment with Nightingale ended, and he went to work for a competitor.  Nightingale sued him and his new employer, but the trial judge entered summary judgment for the defendants.  On appeal, the judgment was affirmed.  The appellate court held that the covenant’s restriction ended in mid-October 2011, two years after his first termination by Nightingale and five months before he was employed by the competitor.  Clarks Black Frances Denny leather Clarks Black leather Denny Denny Frances Clarks 1wqEpOU4xp, No. 29A04-1403-PL-121 (Ind. App., 8/28/14).

The parties’ perception of what occurred in October 2011

Nightingale pointed out that Helmuth returned to the same job position at the same salary, with the same benefits, and without being required to reapply or complete any paperwork.  The company characterized these events as a revocation, rescission and voiding of his first termination.  Helmuth claimed that there was no continuity because he had been discharged and subsequently was rehired.

The Appellate Court’s Ruling

Stressing that Helmuth was required in mid-October 2009 to turn in his company-owned laptop, identification badge, and keys, his access to company property came to an end, and he was not paid for those 10 days, the appellate tribunal held that he had ceased to be a Nightingale employee.  The court wrote: “[B]ased on the evidence, Nightingale’s conduct is more properly defined as a separation from the company which was unconditional and intended to operate as a permanent termination of the employment relationship between Nightingale and Helmuth.”  (Although not cited by the Indiana court, a 2013 unpublished New Jersey appellate court ruling — Truong, LLC v. Tran, Docket No. A15752-1171 — involved similar facts and reached a similar result.)

Nightingale argued that, by returning to work on the same terms and conditions, Helmuth impliedly acquiesced to an extension of the non-compete.  The court of appeals held that this argument was inconsistent with the clause “no modifications, extensions, amendments, or waivers of this Agreement or any of its provisions shall be binding unless in writing and signed by” a Nightingale officer.  The court also said there was no ambiguity in the covenant, and so parol evidence concerning the parties’ intentions was inadmissible.

Takeaways

The appeals tribunal stressed that Indiana courts respect freedom to contract, but that non-compete covenants in an employment agreement are restraints on trade, are not favored, must be strictly construed against the employer, and are enforced only if reasonable (many other states concur).  Where there is a break in service but no relevant express contractual provision, an employer’s safest course is to obtain a new covenant upon the employee’s return.  Alternatively, a contention that employment was continuous could be supported (a) as in Helmuth’s case, by reinstating the same position, salary and benefits, (b) especially where the employee was not employed during the break, by compensating as if there had been no interruption, and (c) by written confirmation that all of the prior contractual terms and conditions, including the non-compete, remain applicable.