contract interpretation

Photo Dictionary and glassesNoncompetes are contracts, and any analysis of a noncompete starts with the language in the noncompete. Once a dispute arises, companies often learn that the language in their noncompete agreements fails to impose the obligations that they had intended. If a company then tries to enforce the agreement that it intended, rather than the agreement that was drafted and signed, courts are unsympathetic.

A recent federal court case in Colorado decided by Magistrate Wang, Continental Credit Corporation v. Garcia, demonstrates the risks to a company when it fails to use exact language to define the obligation owed by an employee under a noncompete.

Continental Credit, National Credit Care and Home Loans Assist Corporation were related companies that shared the same owners, officers, management and employees. All three companies were located in the same office on West 121st  Avenue in Westminster, Colorado and provided credit repair services. The three companies operated separately to take advantage of different marketing and pricing opportunities. Any new employee was required to sign a noncompete agreement with National Credit Care. After the employee was hired, he or she was assigned to one of the three companies. Sometimes, employees were transferred from one company to another depending on the work available for the companies.

Mr. Garcia signed a noncompete agreement when he was hired in October 2014 and that agreement, like the other employee agreements, was with National Credit Care. As soon as Mr. Garcia was hired however, he began working for Continental Credit. Mr. Garcia continued to work for Continental Credit until he quit and joined a competitive company.

Continue Reading Employers take note; courts will favor employees when they interpret noncompetes