An employer’s promise to make severance payments to a worker if she were to be fired without cause is valid consideration for an agreement not to compete or to disclose confidential information that was signed after she began working for the company, according to a July 12 ruling by the North Carolina Business Court.
Chief Judge James Gale, in ruling in XPO Logistics, Inc. v. Anis, granted the plaintiff’s motion for preliminary injunction, enjoining its former director of financial planning and analysis from working with its direct competitor and sharing confidential information.
In its analysis, the court rejected Fouzi Anis’s argument that part of the agreement was illusory, because the possible severance payment was conditioned on her providing a release of claims that must be acceptable in XPO’s sole discretion.
Anis argued that the promise of severance benefits was illusory because XPO had sole discretion as to the form of the release and “could simply refuse any payment and argue that its refusal was justified by the discretion provided by the Employment Agreement’s terms,” according to the opinion.
“However, the Court concludes that XPO’s exercise of that discretion is restricted by an obligation of good-faith performance, and that a court, if necessary, could enforce Anis’s right to severance benefits if XPO, in bad faith, refused Anis’s tender of a general release.”
Breach of contract claim
According to court records, defendant Fouzi Anis worked for Landstar System’s subsidiary Landstar Supply Chain Solutions in 2011, serving as accounting director at its Southfield, Michigan, location.
When XPO acquired LSCS’s stock in December 2013, there was no evidence that Anis had entered into any agreement not to compete with Landstar or LSCS.
But shortly thereafter, she did execute such an agreement regarding her employment with XPO—to be governed by North Carolina law— to not to use or disclose confidential information outside the company and, for a period of six months after termination of her employment, to not work for companies that provided similar services to those of XPO. Anis also agreed to return all confidential information and property to XPO before leaving employment.
The court noted that in her role at XPO, Anis became privy to the company’s proprietary confidential information, including its financial performance, business strategy, pricing, contracts and competitive offerings.
On May 25, the court’s opinion states, Anis participated in a monthly operating review meeting in which confidential information about Supply Chain’s financial performance was discussed.
Two days later, she turned in her resignation and, according to court documents, spent the last several days at XPO forwarding company emails and business files to her personal email account, a violation of her employment agreement.
Gale noted that the materials Anis forwarded to herself could be used by a competitor to its advantage and to XPO’s detriment, and that Anis attempted to conceal her actions by deleting the emails from her “sent” and “deleted” files.
Many of the emails, however, were recovered through a forensic inspection of her computer.
According to an attorney for XPO, David Wright III of Robinson Bradshaw in Charlotte, Anis immediately began working for Syncreon in a position similar to the one she held at XPO. Syncreon was headquartered less than 30 miles from her XPO office. According to Wright, no one disputed that the companies performed similar functions.
On June 15, XPO filed its complaint for breach of contract, violation of the North Carolina Trade Secrets Protection Act, and conversion. It requested a temporary restraining order and preliminary and permanent injunctive relief.
On June 17, Judge Robert Sumner granted the motion and entered a TRO prohibiting Anis from violating her noncompete agreement and from disclosing XPO’s trade secrets.
Supreme Court Chief Justice Mark Martin designated the matter a complex business case, and the Business Court continued the TRO until it could rule on XPO’s motion.
On June 29, the parties requested that the court temporarily refrain from ruling so that they could attempt to reach a resolution, but on July 7, the parties advised that no resolution was forthcoming.
All in good faith
The court, citing well-established law that it is not the adequacy of the consideration that should be evaluated (the state Court of Appeals has held that as little as $100 is sufficient to support an agreement not to compete), turned to Anis’ argument that the promise of potential severance benefits was illusory.
Gale found that unlike cases in which employees were given hope of future considerations “based on an event that was uncertain and difficult to ascertain without an objective standard. Anis was given a contractual right to a severance payment that XPO could avoid paying only upon its good-faith refusal to accept the general release Anis supplied pursuant to the terms of Employment Agreement.
Gale acknowledged that no North Carolina appellate court had previously addressed the existence of a good-faith obligation “within the context of a discretionary promise offered as consideration for a restrictive covenant in an employment agreement,” but cited several cases in reasoning that general contract principles allowing the application of an obligation of good faith could apply, despite the fact that restrictive covenants are disfavored in North Carolina.
“The Court concludes that XPO’s promise was not illusory, and although the form of a release was yet to be determined, the clause regarding severance benefits is not an unenforceable ‘agreement to agree,’” Gale wrote.
Wright, XPO’s attorney, said that just because “the chickens don’t come home to roost,”—in this case, no severance payments were made to Anis—it doesn’t mean that no consideration exists.
“I don’t think that’s been decided before, but Judge Gale relied on a lot of cases that say that just because someone has discretion with respect to anything, whether it be to obtain reasonable financing or some other condition, that doesn’t mean that it’s illusory because there’s a good-faith requirement,” Wright said. “He applied that line of cases and found that therefore there was consideration.”
Anis was represented by attorneys from Alston & Bird in Charlotte. One of her attorneys, Mark Calloway, declined to comment on the pending case.
The 16-page decision is XPO Logistics Inc. v. Anis (Lawyers Weekly No. 020-049-16). The full text of the opinion is available online at nclawyersweekly.com.
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