Pais v. Automation Products, Inc.
36 Va. Cir. 230, 1995 Va. Cir. LEXIS 1193 (1995)
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Rule of Law:
A clear and unambiguous general release in a separation agreement that releases an employee from all existing covenants and contracts will be enforced according to its plain language to nullify a non-compete clause from a prior employment agreement. Separately, a non-compete covenant is unenforceable if its geographic scope and restricted activities are broader than necessary to protect the employer's legitimate business interests.
Facts:
- Elwood A. Pais worked as Executive Vice-President for Automation Products, Inc. (API) under an Employment Agreement.
- The Employment Agreement contained restrictive covenants preventing Pais from competing with API for two years within a 125-mile radius of any API office or employee location.
- The covenants also broadly barred him from doing business with any entity that had a business relationship with API, including prospective customers.
- Upon the termination of his employment, Pais and API executed a written Separation Agreement.
- At Pais's request, the Separation Agreement included a reciprocal general release clause (Paragraph 8B).
- Paragraph 8B stated that API released Pais from 'all manner of action... covenants, contracts, agreements... which API now has against Pais.'
- After leaving API, Pais established a new company, The Work Place, Inc., in the same industry.
Procedural Posture:
- Elwood A. Pais filed a Motion for Declaratory Judgment in a Virginia trial court against Automation Products, Inc. (API), seeking to have restrictive covenants in his employment agreement declared unenforceable.
- API subsequently filed a Bill of Complaint against Pais in the same court, requesting an injunction and damages for breach of the same restrictive covenants.
- Pais then filed a motion for summary judgment on the issues raised in his initial declaratory judgment action.
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Issue:
Does a broad, general release in a separation agreement, which explicitly releases an employee from all existing 'covenants, contracts, [and] agreements,' discharge the employee from non-compete obligations contained in a prior employment agreement?
Opinions:
Majority - Judge Robert P. Frank
Yes, a broad general release in a separation agreement discharges the employee from prior non-compete obligations. The court must enforce the plain, unambiguous language of a contract as written. The Separation Agreement's general release clearly and explicitly discharged Pais from all prior 'covenants' and 'contracts,' which necessarily includes the non-compete clause from the Employment Agreement. The parol evidence rule bars the admission of extrinsic evidence to vary the terms of a complete and unambiguous written contract, and API failed to prove a mutual mistake that would justify an exception. As an alternative and independent ground for the holding, the court also found the non-compete covenants unenforceable as a matter of law because their geographic and activity-based restrictions were overbroad, unreasonable, and greater than necessary to protect API's legitimate business interests.
Analysis:
This case underscores the critical importance of precise drafting in contract law, especially concerning employment separation and restrictive covenants. It establishes that a boilerplate general release can unintentionally extinguish significant, pre-existing contractual obligations, such as non-compete clauses, unless those obligations are expressly carved out. The decision also reinforces Virginia's strict judicial scrutiny of non-compete agreements, reaffirming that such covenants will be invalidated if they restrict an employee beyond the specific geographic areas in which they worked or in activities unrelated to the employer's legitimate, protectable interests. This places a heavy burden on employers to draft both releases and restrictive covenants with meticulous care to ensure their enforceability.
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