The Missouri Court of Appeals recently ruled that an employee who resigns rather than sign a non-compete agreement is entitled to unemployment benefits.   Darr v. Roberts Marketing Group, LLC, , No. 13-07274R-A, (Mo. Ct. App. Apr. 22, 2014)  In this case, David Darr appealed a finding by the Missouri Labor and Industrial Relations Commission denying him unemployment benefits.

Darr began working for Roberts Marketing Group in October, 2012 selling life insurance.  In January 2013, Darr was informed that the employer would be requiring all employees to sign non-compete agreements.  The employees were required to sign the agreement by February 1, 2013.  Darr refused and said he wanted to speak to an attorney.  Darr was told signing the agreement was a condition of his employment.  Darr refused to sign the agreement and later resigned.

Darr filed a claim for unemployment benefits.  The Missouri Labor and Industrial Relations Commission ultimately ruled that Darr was disqualified from receiving unemployment benefits because he left his position voluntarily without good cause.  Missouri law permits an employee to leave a position voluntarily with good cause and still receive unemployment benefits.  The Commission ultimately concluded that the non-compete was no so restrictive of Darr’s employment prospects to warrant a finding of good cause.

The Missouri Court of Appeals reversed the Commission finding that the Commission had vastly understated the facts of the case.  The Court of Appeals began by noting that Roberts Marketing had given Darr an ultimatum to sign a non-compete or be terminated, combined with a limited opportunity to review the agreement and seek legal advice.  Roberts Marketing had also drafted a non-compete that was nation-wide, could have been extended for up to six years, and required Darr to waive any defenses in future litigation. The Court of Appeals implied that these restrictions were far more than permissible in Missouri.

The Court of Appeals ultimately concluded that it viewed the Agreement was one that “may significantly constrain a person’s future ability to earn a livelihood or to pursue a chosen occupation while simultaneously exposing the individual to potential litigation and liability.” Id. at *18.  The Court of Appeals concluded that Mr. Darr was faced with external pressures “so compelling that a reasonably prudent person would be justified in terminating his employment.”  Id.  The Court of Appeals reversed the Labor and Industrial Commission and remanded the matter back to them to process Darr’s unemployment claim.

Takeaways:  First, the Missouri Court of Appeals did not explicitly rule on the enforceability of the employment agreement in this case, but cast doubt on whether the employer could enforce it.  Restrictive covenants should be reviewed by an experienced non-compete lawyer before they are provided to employees.  Second, the Missouri Court of Appeals did not rule that it was impermissible for an employer to require an employee to sign an agreement as a condition of continued employment. Employers in Missouri may still terminate an employee who refuses to sign a non-compete agreement.  Third, employees in Missouri should be provided with sufficient time to review a proposed agreement, and be allowed to have their own lawyer review it if they ask. These failures of the employer, weighed heavily on the Court of Appeals’ analysis of whether good cause existed to permit the employee to obtain unemployment benefits.