“Termination” vs. “Separation”: The Importance of Clarity in Non-Competes

When defining the event that triggers post-employment non-competes or other restrictive covenants in a contract, parties sometimes use “termination” and “separation” interchangeably. After all, both words mean that the employment relationship has come to an end. But a recent case from Ohio highlights the importance of carefully defining the event triggering the restrictive covenants to avoid unintended consequences. 

In Buckeye Wellness Consultants, LLC v. Hall, No. 20AP-380 (Ohio Ct. App. May 12, 2022), the employer had its employees sign agreements containing post-employment covenants not to compete and covenants not to solicit. Two employees voluntarily resigned and allegedly began competing with the employer in violation of their restrictive covenants. The employer sued each employee for breach of contract, among other claims, and later appealed following a bench trial in which the trial court granted judgment in favor of the employees and dismissed all of the employer’s claims.

One of the agreements at issue specified that its restrictive covenants were to take effect “following termination of the [e]mployee.” (Emphasis added). This agreement contained a section titled “termination,” but that section did not address what would happen in the event of voluntary resignation. However, the agreement did define “employment separation,” which was “the separation or termination of [e]mployee’s employment with the Company, regardless of the time, manner or cause of such separation or termination.” (Emphasis added).

In affirming the trial court’s judgment dismissing the employer’s claim for breach of contract, the appellate court held the agreement clearly provided different meanings for the terms “termination” and “separation,” and they were not interchangeable. Based on the plain language of the contract, the restrictive covenants only triggered upon the employee’s “termination,” not “separation.” A different provision of the contract even referred to actions based on the employee’s “termination or separation,” indicating the parties knew how to include both terms if they so desired. The court rejected the employer’s argument that the word “termination” in the restrictive covenant section was intended to mean termination of the relationship and not the termination of the employee.

Because the plain language of the contract indicated the parties did not intend for “termination” to include voluntary resignation, the court held the employee who voluntarily resigned was not bound to the restrictive covenants that triggered upon “termination” of the employee.

Key Takeaway 

Never forget bedrock contract law—courts apply the words the parties choose. The Buckeye Court relied on the parties’ own distinction between “termination” and “separation” in their agreement to conclude that voluntary resignation did not fall within the concept of “termination.” Employers and attorneys should take note and clearly define all terms used in employment agreements in order to ensure the contract says what the parties mean. This is critical when defining what event triggers the running of post-employment restrictive covenants.

Food for Thought 

If the contract had not defined “employee separation” to be distinguishable from “termination,” would the restrictive covenants be enforceable in the event of a voluntary resignation? Is there a difference in plain meaning between the words “termination” and “separation”?