Southwest Industries, Inc. is a corporation that provides technical services. Su

Question

Southwest Industries, Inc. is a corporation that provides technical services. Suppose Mike Youngblood is the President of TDI Technical Services (“TDI”). The company is privately owned by Shareholders. Southwest wants to buy TDI Technical Services. Southwest is owned solely by Peter Schwimmer however he has a line of credit from a Bank. The Bank will not lend him any funds to buy Southwest without collateral against all assets of TDI. The Bank is also concerned about new competition from former employees of TDI post sale. Peter Schwimmer, Southwest's owner and president has assurances from TDI they would like to sell however Schwimmer wants to make sure Youngblood is going to stay on after the sale and become Vice President after the purchase of TDI. TDI is also a little concerned because there may be taxes due when the sale takes place from a capital gain. Youngblood has been under contract with TDI since 1999 and has a clause in his current contract which states he can leave the company if there is ever a sale of TDI to another company. His contract further states when he leaves TDI he is allowed to take all accounts he developed during his employment at TDI as his “book of business.”TDI in 2007 established a new corporate policy that every employee agreed not to compete against TDI or and successor in interest to TDI in the future for at least two years after leaving the company. All employees of TDI executed a Non competition agreement except for Youngblood. At the time Youngblood indicated he refused to execute the agreement because of his “Book of Business” clause and stated, “as far as I am concerned since 1999 all accounts of the company are mine…” From the perspective of your Group please describe what terms would you offer to the respective parties to get this Contract finalized. What Terms are of importance to you. What types of clauses are needed to protect your interests.

Explanation / Answer

Ans:

The issue at hand is that the noncompete agreement was never discussed, and the employee was not made aware of the fact that if they agree to work for this company they will not be allowed to work for a competitor for a year after termination of employment. The problem was made worse by the fact that the employee never asked for a copy of the agreement to review on their own, and the employer never offered a copy of the work contract to the employee. This made it so that there was a lot of grey area and room for questioning. However, the employee signed the contract which means that they agree to everything in it regardless of whether they read it, were handed it to look over prior to signing, or agree with it. Once his name is on that contract he gave his word that he agreed to everything in there including the noncompete agreement. The contract was officially signed and accepted on the date that pen was put to paper (not when they had discussions over the phone, but only when it was legally binding). this happened on June 26, 1999.

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