Eastern District of Pennsylvania

A May 18, 2022 decision from the Federal court for the Eastern District of Pennsylvania serves as a cautionary tale as to one more important reason why you don't want your noncompete agreements to be ambiguous, and it's fairly straightforward:

It will cost you a boatload of money if you ever decide to litigate over the vague provisions.

Here's why (and this is true pretty much regardless of which jurisdiction you may be in):

Once a contract's provisions are unclear, the Court is obliged to look for evidence outside the four corners of the contract itself to determine what the parties really intended in order to fill in the proverbial "gaps" in the contract. In legalese, that's called "parol," or "extrinsic," evidence. And, at the risk of stating the obvious, other evidence, which typically includes the exchange and review of documents and securing the sworn testimony of parties (and possibly non-parties) to the litigation means a significant expenditure of money on legal fees (and, in an increasing number of instances, of third-party eDiscovery provider fees to cull and store the relevant documents for the duration of the litigation).

This was pretty much spelled out by the District Court in Globus Medical v. Sharp.

What Happened in Globus Medical

According to its complaint, Globus claims that it is a medical device company that specializes in products that help surgeons treat various disorders with a particular focus on those requiring spinal surgery, and that they employ a large team of field representatives to market their products to doctors and hospitals, like Sharp. As part of his employment with Globus, Sharp executed three (3) different agreements, including a February 2020 "Minimum Monthly Guarantee Draw Agreement," a second compensation agreement in February 2021, and a third "Field Sales Interim Advance Agreement" in October 2021. Sharp resigned his position with Globus in December 2021, at which point he went to work for Medtronic, a competitor.

Under the "clawback" provisions of the compensation agreements, Globus demanded that Sharp repay Globus $1,342,452.28 in advanced monies, which, not surprisingly, Sharp refused to do. This lawsuit followed.

The Issues Confronting the Court at the Outset of the Case

Predictably, as is often the case involving these kinds of breach of contract claims, each side believes that there is a glaring issue that warrants at least a partial judgment in their favor - and right off the bat. This case was no different.

Leaving aside the substantial amount of time (and ink) the Court devoted to address the thorny issues as to which State's laws should govern the different claims in this case (which are certainly important, but not the focus of this article), the Court emphasized that it was impossible to render a decision in any party's favor on these contract terms absent discovery because they were just way too vague, stating:

"Unsurprisingly, the parties deviate appreciably in their characterizations of the Compensation Agreements. Globus, on one hand, views the Compensation Agreements as “forgivable loan agreements” and, as such, the repayment obligation provisions govern “voluntary loans” that Sharp agreed to pay back should he depart Globus before a certain amount of time elapses. On the other hand, Sharp views the Compensation Agreements as, essentially, non-compete agreements, and the repayment obligation provisions contained within as thinly veiled covenants not to compete, penalizing Sharp for invoking his right as an at-will employee to leave his job. In any event, at this juncture, the Court is unable to definitively say what the type of agreements are at issue given their ambiguities. In other words, the repayment obligation provisions are all “reasonably susceptible to more than one interpretation”: as either requiring the repayment of loan-type payments or constituting potentially penal liquidated damages provisions."

Consequently, the Court summarized its ruling as follows:

"Before the Court is Defendant Edward Sharp’s Motion for Judgment on the Pleadings as to Count VI of Plaintiff’s Complaint. Sharp, by moving for judgment on the pleadings, in effect asks the Court to cement the meaning of the “repayment obligation” provisions in his compensation agreements at this early juncture, aided only by the language contained within the four corners of the agreements. But these agreements, sloppily drafted as they are, are far from unambiguous. And as explained below, the Court is unable to identify the intent of the parties concerning the provisions at issue due to the rampant ambiguities in each. Extrinsic evidence as produced during discovery will be needed to resolve these ambiguities."

The Takeaway

The takeaway from this decision (as suggested by the title to the article) should be obvious: if your agreements, particularly in the realm of noncompete clauses, are unclear, you should be prepared to incur substantial expense to slug out the meaning of the agreement in court - and that's all just for the "privilege" of the chance for the court to concur with your view of the agreement.


Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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