General Release thwarts attempt to enforce Non-compete

Releases are a common element of any settlement agreement between parties, including employers and employees. In the case of general releases, however, care must be exercised that the parties do not inadvertently relinquish unintended rights. A recent case from the Court of Chancery illustrates this point when a company apparently unintentionally waived its rights to enforce a noncompete agreement.

Christopher Schaffer was a major stockholder and Executive Vice President of a company acquired by CorVel Enterprise Comp, Inc. On the same day that the stock purchase agreement was signed, Schaffer, for additional consideration, also executed a noncompetition agreement which prohibited him from competing with CorVel for a five year period.

A dispute subsequently arose between Schaffer and CorVel regarding an earn out payment under the stock purchase agreement. That dispute was resolved in February 2009 through a settlement agreement providing Schaffer with a payment of $800,000. Significantly, both parties executed general releases of all claims as part of the settlement.

Schaffer later went to work for a competitor, resulting in CorVel bringing an action to enforce the noncompetition agreement in the Court of Chancery. Schaffer argued that the general release relieved him of his duties under the noncompetition agreement.

The Court, relying on the broad language of the release, found that CorVel had released any rights it had against Schaffer under the noncompete agreement and granted Schaffer judgment on the pleadings. CorVel Enterprise Comp, Inc. v. Schaffer, C.A. No. 4896-VCN (Del. Ch. May 19, 2010).

Contract language sometimes has unintended consequences. If the contract is unambiguous, the Delaware Court of Chancery may not rely on extrinsic evidence that might otherwise shed light on the intentions of the parties.

Contact Information