When employees sign a non-compete agreement with their employers as a condition of their employment or separation, it is imperative that they follow it to the letter of the law. Some of our readers in Massachusetts may be thinking about getting back into the job market after taking a requisite break from their industry of choice, but heed this lesson in employment contracts and clauses that two bankers learned the hard way.
In 2006, a bank CEO sold his institution to Capital One Financial for $13 billion, which houses its Strategy and Corporate Real Estate Groups in Boston. As part of that sales agreement, the banker promised not to do business in his home market for six years. He adhered to the rules for three years, but in 2009 he joined a team of private equity investors to purchase a failed thrift bank in another state. At this point, he was still compliant with his non-compete agreement, but it eventually led to his employment contract dispute.
The trouble started when his new venture acquired a small bank in his home market. As the new business began to thrive, the banker started signing new branch leases, bidding for loan portfolios and expanding his workforce in his home town. Now, he was certainly conducting business as usual in the market he promised not to enter for another three years.
Capital One sued the banker in federal court. The banker counter-sued and they were set to face off in court this summer. Just this week, the parties reached a settlement without any admittance of guilt. The banker and his partners must pay Capitol One $20 million in cash and refrain from doing business in their home market until the end of January 2013. If they had just adhered to the original non-compete contract, they would have been able to get back to business-as-usual this August.
Source: crainsnewyork.com, “Former North Fork execs dinged $20M,” Aaron Elstein, June 19, 2012