Integration Clause Frees Employees and Board members from Non-Compete Clause Compliance
In Pennsylvania, Diskriter, Inc. and Joansville Holdings, Inc. sued for an injunction to prevent Randy A. Baker from working for Keystrokes Transcription Service, Inc., “and prevent Baker from soliciting any of Diskriter´s customers.” Diskriter, Inc. lost the case. Baker is free to work for whatever company or corporation he chooses, as well as solicit Diskriter´s customers.
What follows is the background of the case. Before going to work for KTS, Baker was employed by Diskriter, Inc. Part of the language of the contract Baker signed with Diskriter, Inc. included a non-compete clause. While Baker was working for Diskriter, the dynamics of the company changed as the result of a merger— stock purchase agreement (SPA)—with Joansville Holdings, Inc.
After the SPA, Baker signed an integration clause, an adendum to his original contract with Diskriter that reflected his new position at Diskriter-Joansville. However, the language of the merger clause did not include a non-compete.
Baker felt free to leave, and he did.
The difference of opinion between Diskriter-Joansville and Baker was based on the question of whether or not the original employee contract Baker signed when Diskriter was an independent firm was superseded by the employee contract Baker signed with Diskriter-Joansville.
Diskriter-Joansville claimed it was not. Baker believed it was.
The first court found in favor of Baker. In their estimation, the second contract made the language of the original contract null and void with respect to the non-compete. Diskriter-Joansville appealed the finding and the case went to a Pennsylvania appellate court. The PA Appellate Court agreed with the original court´s findings.
The merger clause included no language with regard to a non-compete, so Baker is in their opinion free to do as he chooses. Both courts decided Baker was not in violation of his contract and the injunction was granted denied.
The ruling implies that even if an employee has signed a non-compete clause in one contract, it does not mean the language necessarily carries over into a subsequent contract.
To be clear, the second contract was not complete. It was simply an addendum to the first, called an integration or merger clause. As such, employers must beware of the fact that even if a merger clause is merely an addition to the original contract, its language carries more weight.