The Case of the Encumbered Employee - USC Gould School of Law

HARVARD LAW SCHOOL

Problem Solving

Workshop

The Case of the

Encumbered Employee

Part 1: The Problem

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PSW014 (20091217)

ENCUMBERED EMPLOYEE: PROBLEM 1 COPYRIGHT © 2009 HARVARD UNIVERSITY

Contents

PARTNER'S MEMO 2

DOCUMENTS 5

EXHIBIT #1: ORIGINAL EMPLOYMENT OFFER 5 EXHIBIT #2: ORIGINAL EMPLOYMENT CONTRACT 7 EXHIBIT #3: SECOND EMPLOYMENT CONTRACT 11 EXHIBIT #4: PROPOSED SETTLEMENT AGREEMENT AND RELEASE 13


PARTNER'S MEMO

From: Senior Partner1 To: Associate Date: Jan. 4, 2007

It is now January 2007 and we need to prepare for a meeting with a client named

Dr. Johnye Lee who until recently worked for Capek Research (“Capek"), a subsidiary of a large, multinational conglomerate headquartered in Germany, called Capek International (“Capek International"), with $30B in annual sales, 100,000 employees worldwide, and six major business sectors: power generation, industrial electronics, consumer electronics, automotive electronics, defense, and communications. Dr. Johnye Lee had worked for 12 years for Capek. For her first six years at the Capek research lab in Cambridge, Massachusetts, her job title was Applied Computer Research Manager; at that time, her title was informally changed to Research Director as her duties had expanded to place her in charge of a larger group of employees. She initally was offered a job doing applied computing research and development over the phone and through a one page letter, dated May 1, 1994 (Exhibit #1), after which she signed a contract, entitled “Confidential Information and Employee Invention Agreement" dated June 1, 1994 (Exhibit #2). Although her title had informally been changed to Research Director after six years on the job, she got a formal promotion to Research Director in in a written 2005 letter. (Exhibit #3).

Capek is a Delaware corporation with its principal place of business in Massachusetts. The Cambridge lab focused on computing as it applied to Capek International’s many businesses. Research topics included most of the major subareas of applied computing: computer graphics, human‐computer interaction, computer vision, audio & speech recognition, robotics, wireless communication, artificial intelligence, and information theory. Dr. Lee’s job grew from focusing on research to combining research with management, overseeing 20 permanent researchers and up to 60 temporary employees per year (interns, consultants, contractors) in these disciplines. The temporary employees included student interns, academic consultants, and contractors, mostly from the Boston area. Her responsibilities included personnel management, setting the technical direction of the lab, and fostering commercialization of the new technologies developed there. By 2005, Dr. Lee had recruited most of the employees who reported to her at Capek, many of whom had joined the company straight from graduate school and had no other work experience. In her role as Research Director, Dr. Lee was responsible for their career development.

Late in 2006 the President and CEO of Capek, Mark Taylor, decided to take the company in a radical new direction. Dr. Lee resisted the scope and speed of the

1 This problem was written by Joseph Singer. It is based on Massachusetts employment law but the case itself is fictional. It has been written for educational purposes and is not suitable as a basis for giving legal advice.


changes, fearing that if they were made too quickly many highly skilled employees would leave the company precipitously. Dr. Taylor rejected this point of view and fired Dr. Lee with no notice, contrary to industry norms and to previous practice at Capek.

This left Dr. Lee in a precarious position. Her contract contained several clauses that would make it difficult for her to find comparable employment, including (1) a nondisclosure clause, prohibiting her from ever revealing, directly or indirectly, intentionally or unintentionally, any trade secrets discovered or created during her employment with Capek; (2) a nonraiding clause (also sometimes called a non‐solicitation clause), preventing her for two years after her employment ends from communicating with former employees and co‐workers so as to induce them to leave their employment with Capek and/or to join her in working for a competing company; (3) a non‐interference (or non‐solicitation) clause, preventing her from communicating with any of Capek’s customers or clients for two years after her employment terminates, and (4) a noncompetition clause, prohibiting her from engaging in similar employment for two years after termination of her employment with Capek. Moreover, senior management jobs in applied‐computing R&D are rare, so it typically takes several months to find a new position.

Capek has offered Dr. Lee a “Settlement Agreement" which provides for a one‐time payment of $137,000 in exchange for Dr. Lee’s waiving any further legal claims she might have against Capek (Exhibit #4). Both this severance agreement and the initial contract provide that they are to be governed by Massachusetts law. Although the original contract requires any claims to be brought in Massachusetts courts, the severance agreement requires any disputes to be resolved by arbitration. Without any other source of income and an indefinite but probably lengthy time before her next paycheck, Dr. Lee feels constrained to reach some kind of financial settlement with Capek.

Unfortunately, the proposed severance agreement is restrictive and not generous; moreover it will make it very difficult for Dr. Lee to find another job in her field in Massachusetts. The nondisclosure, non‐solicitation, non‐interference, and non‐competition clauses could subject both Dr. Lee and her future employers to possible claims that they were benefiting from trade secrets obtained by Dr. Lee during her prior employment and any clients who sought Dr. Lee’s services at her new employment might also subject her new employer to a claim of tortious interference with contract relations. Importantly, the non‐raiding clause in the agreement makes her a much less attractive candidate to Massachusetts companies that may want to hire some of the other permanent and temporary employees at Capek’s Cambridge lab, many of whom began to look for other jobs immediately upon Dr. Lee’s departure. These companies may well fear that hiring Dr. Lee and then hiring some of her former reports within two years would trigger a lawsuit from Capek.

Because of her difficulties finding a suitable job in Massachusetts, Dr. Lee expanded her job search to include other geographical and business areas. She has now received an offer from Kingdom Enterprises, located in Los Angeles, California.


Kingdom Enterprises is a large and successful entertainment company and does not compete in any business arena with Capek Research. Dr. Lee is married to another woman in Massachusetts; her spouse works in Cambridge in the admissions office of a local college. They have a thirteen year old son. Dr. Lee would rather not move to California but the offer from Kingdom Enterprises is attractive and she has decided to accept; however, she has not yet communicated that decision to her new employer. Her spouse and child are very likely to join her in California but that has also not been finalized and the timing of that move is an open question. The status of same‐sex marriage in California is also an issue for the couple.

Because many of the employees Dr. Lee had recruited for Capek considered her as their mentor, they have been approaching her for career advice since her firing. They are asking her questions like whether to accept a job offer from another company, whether she would write a letter of recommendation for them, and whether they could apply for a job at Kingdom Enterprises. Dr. Lee is unsure whether she can answer such questions without violating the non‐raiding clause. Her immediate problem is that one of her employees, Janet Langston, has already applied for a job at Kingdom Enterprises in her department. She would very much like to hire her. So Dr. Lee needs to know immediately how to handle that situation, as well as what to do about the proposed settlement agreement.

~ Should Dr. Lee sign the settlement agreement with Capek or negotiate for

different terms? ~ Can she hire her former employee and can she give recommendations to

her former employees who seek jobs at Kingdom or elsewhere?


DOCUMENTS

Exhibit #1: Original Offer Letter

CAPEK RESEARCH 2100 Riverside Drive, Cambridge, MA 02139 Tel: 617.000.0000 www.capek.com

May 1, 1994

Dr. Johnye Lee 400 Fray Road Cambridge, MA 02138 Dear Johnye: I am pleased to offer you the position of Applied Computing Research Manager at CAPEK RESEARCH to be effective June 1, 1994. In this role you will serve as a member of the CAPEK Management Team and will report directly to me. Your base salary will be $160,000 per year. CAPEK RESEARCH’s payroll is generated on a semi‐monthly basis (24 pay periods per year, on the 15th and last business day of each month), which means your semi‐monthly amount will be $6,666.67. In addition you will be eligible for a yearly bonus of $12,000 payable quarterly based on achieving CAPEK RESEARCH’s goals, which we will work together to establish. You will next be eligible for a merit pay increase on June 1, 1996. All employees of CAPEK RESEARCH may participate in our company employee benefit programs according to our customary rules of eligibility. You are also entitled to 4 weeks paid vacation to be taken in accordance with current CAPEK RESEARCH policy and a company car. You are eligible for the CAPEK RESEARCH Executives’ Deferred Compensation Plan, according to our customary rules of eligibility. This offer is conditional on your signing a Confidential Information and Employee Invention Agreement. Enclosed are two copies of the agreement. Please sign and bring both copies with you on your first day. We expect you to honor any confidential agreements and restrictions applicable to any prior employment of yours.


Per government regulations, we are required to have proof of identity and documentation supporting your eligibility to work in the United States. This should be provided within the first three days of your start date. Employment with CAPEK RESEARCH is at the will of both you and the company. Neither this letter nor any other company document implies a contract of employment for any specific period. If you decide to accept our offer, please sign and return the attached copy of this letter signifying your acceptance by May 23, 1994. We make this offer with the expectation that our employment relationship with you will be mutually beneficial and satisfactory. Should you have any questions about this offer or specific benefits or policies of CAPEK RESEARCH, please fell free to call me or Tracy Bloom, our Human Resources Manager, at 617.000.0007. I look forward to this opportunity for us to work together.

Very truly yours,

Mark Taylor Mark Taylor, Ph.D. President and CEO

Johnye Lee May 15, 1994 June 1, 1994 Johnye Lee Date Start Date


Exhibit #2: Original Confidentiality Agreement


Confidential Information and Employee Invention Agreement

This agreement is made and entered into as of this 1st day of June, 1994 by and between CAPEK RESEARCH, a Delaware corporation located in Cambridge, MA (the "Employer"), and Johnye Lee, an individual whose address is at 400 Fray Road, Cambridge, MA 02138 (the "Employee"). The purpose of this Agreement is to set forth the parties’ agreement relating to protection of the confidential and proprietary data of the Employer and others with whom it does business. In consideration of the Employer’s agreement to commence or continue Employee’s employment, Employee agrees to the terms and conditions set forth in this Agreement. For purposes of this Agreement, "Affiliate" means the Employer’s parent corporation and any corporation owned or controled by the Employer or under common ownership or control with the Employer, and the Employer and the Affiliates shall be referred to, collectively, as the "Company."

1. Employment. The Employer is hiring or currently employs Employee as an employee‐

at‐will to perform services in the position of Applied Computing Research Manager at CAPEK RESEARCH. The Employer and Employee agree that, as part of Employee’s employment, he or she may create inventions and/or ideas of value to the Employer and may receive or contribute to the production of Confidential Information (as defined below) belonging to the Employer.

2. Third‐Party Information in Possession of Employee. The Employer does not want

Employee to discuss or use any confidential information or materials belonging to any third party or prior employer during or in connection with Employee’s employment by the Employer. Employee represents and warrants that during Employee’s employment with the Employer, Employee will not use, disclose to the Employer or induce the Employer to use any such confidential information or materials. Employee also represents that his or her employment with the Employer will not require Employee to violate any obligation to or confidence of any other person or entity. Employee acknowledges that the Employer has expressly stated that it does not wish to receive any such information.

3. Confidential Information. "Confidential Information" means the Company’s

information or material, which is of a confidential or proprietary nature, which is designated as "Confidential" or "Proprietary" or with another similar legend or which is not generally known by the public. "Confidential Information" also includes, but is not limited to confidential, proprietary or secret information in regard to: the


business, customers, finances, or business processes of the Company; the development engineering or research work of the Company; any confidential or proprietary information of a third party (including any person or entity which is not an Affiliate); and any other information which the Company designates as being confidential, proprietary, or secret. Information publicly known that is generally used in the trade at or after the time Employee first learns of such information, or knowledge which Employee would have learned in the course of similar employment or work elsewhere in the trade, shall not be deemed to be part of the Confidential Information.

4. Non‐Disclosure of Confidential Information. Employee acknowledges that the

Confidential Information is a special, valuable and unique asset of the Company. At all times during and after Employee’s employment with the Employer, Employee shall keep the Confidential Information in confidence and trust and shall not, in any way, disclose or transfer, directly or indirectly, intentionally or unintentionally, any of the Confidential Information to any person or entity or utilize any of the Confidential Information for any purpose, except in connection with his or her duties as an employee of the Employer and with its consent. Employee shall comply with all policies, rules, and procedures established by the Employer from time to time for the protection of the Confidential Information.

5. Return of Materials Upon Termination of Employment. All physical or electronic

information and documents in any way incorporating or reflecting any of the Confidential Information shall belong exclusively to the Company. Upon the termination of Employee’s employment with the Employer or at such other time as the Employer may request, Employee shall immediately deliver to the Employer all copies of Confidential Information, in whatever medium it may be embodied, which are in Employee’s custody or control, and Employee shall not take or retain any copy or excerpt of any information or document containing any Confidential Information.

6. Inventions and Discoveries.

(a) Employee shall promptly disclose to the Employer any and all inventions, improvements, trade secrets, algorithms and know‐how or any works of authorship, whether or not subject to protection under patent, copyright, trademark or any other intellectual property law and whether or not reduced to practice, which Employee, either alone or jointly with others, conceives or learns of during the period of his or her employment with the Employer and which relate to or result from the actual or planned business, research or development of the Employer or which result, to any extent, from use of the Employer’s premises (collectively the "Inventions").

(b) Employee acknowledges and agrees that all Inventions shall be considered works for hire and the sole property of the Employer or any other person or entity designated by it (the "Designee"), and Employee hereby assigns to the Employer or the Designee Employee’s entire right, title and interest in all Inventions. Employee shall, at the Employer’s expense, assist the Employer or the Designee to obtain and, from time to time, enforce any patent, copyright, trademark or other property right with respect to the Inventions in any and all countries. Employee’s reasonable obligation to assist the Employer or the Designee in


obtaining and enforcing patent, copyright, trademark and other intellectual properyt rights for Inventions shall continue after the termination of Employee’s employment with the Employer, but the Employer or the Designee shall compensate Employee for time actually spent by Employee at the Company’s or the Designee’s request.

7. Personal Inventions. All inventions, improvements, trade secrets, algorithms, know‐

how and works of authorship, if any, which Employee has made prior to the date of his or her employment with the Employer ("Personal Inventions") are excluded from the scope of this Agreement. A complete list of all Personal Inventions, if any, which may relate to any line of business in which the Company is now engaged or is considering or expects or plans to be engaged is attached hereto as Exhibit A. Employee represents and warrants that such list is complete.

8. Conflict of Interest. During Employee’s employment by Employer and for a period of

two years thereafter, Employee shall not, directly or indirectly, either on Employee’s behalf or on behalf of any other person or entity, attempt to persuade or solicit any person who is an employee of CAPEK RESEARCH to terminate such employment. During the period of Employee’s employment by the Employer and for a period of two years thereafter, Employee shall not, without the Employer’s prior written consent, engage, directly or indirectly, in any employment, consulting or activity other than for the Employer relating to any line of business in which the Employer is now engaged, is engaged at such time, is considering, expects or plans to be engaged, or which would otherwise conflict with Employee’s obligations to the Employer. Further, Employee shall abide by any policy concerning conflicts of interest which the Employer may from time to time have in effect.

9. Injunctive Relief. Because of the unique nature of the Confidential Information and

the Inventions, Employee acknowledges and agrees that a breach or threatened breach by Employee of this Agreement may cause irreparable harm to the Employer, the extent of which would be difficult to ascertain. In addition to any other remedies and damages available to the Employer at law or in equity, the Employer may obtain injunctive relief or any other appropriate order to restrain any such breach or threatened breach by Employee, without the need for showing or proving any actual damages sustained by the Employer.

10. Notices. Any notice required in connection with this Agreement shall be in writing

and shall be given by personal delivery, by reputable overnight courier with documentation of receipt or by registered or certified mail, return receipt requested, and with all postage prepaid, to Employee at his or her address set forth on the first page of this Agreement, in the case of the Employer to 2100 Riverside Drive, Cambridge, MA 02139, Attn: Chief Executive Officer. Either party may change its address for notice by notice given in accordance with this article. Notices shall be deemed received on the date of receipt or the date upon which the receipt is refused.

11. Governing Law and Jurisdiction. This Agreement shall be governed by, and

interpreted in accordance with, the laws of the Commonwealth of Massachusetts. Employer and Employee hereby agree that any action to enforce any provision of this


Agreement shall be brought only in a state or federal court located in Middlesex or Suffolk Counties, Massachusetts.

12. Entire Agreement. This Agreement constitutes the entire agreement and

understanding between the parties, and shall supercede any prior agreements, with respect to the subject matter of this Agreement. Any amendment or modification of this Agreement shall be in writing and duly exectued by the parties.

13. Successors and Assigns. This Agreement shall be binding upon Employer’s heirs,

personal representatives, successors and assigns. 14. Severability. If any provision or part of any provision of this Agreement shall be

determined to be invalid or unenforceable in any respect, such determination shall not affect any other provision or part thereof of this Agreement. All surviving provisions shall remain in full force and effect as if this Agreement had been executed without such invalid or unenforceable provision or part thereof.

15. No Waiver. No waiver of, or the failure of either party to require, strict compliance

with any provision of this Agreement in any respect shall be deemed to be a waiver of such party’s right to insist upon strict compliance with such provision or with all other provisions of this Agreement. A waiver shall not be binding unless executed in writing by the party against whom the waiver is sought to be enforced.

IN WITNESS OF WHEREOF, the parties have caused this Agreement to be executed on the

day and year first above written.

Capek Research


Johnye Lee June 1, 1994 Employee Signature Date Signed Note to Employee: This Agreement will create obligations which are binding upon you. Please read it in full and make sure you understand its contents before you sign.


Exhibit #3: 2005 Employment Contract


December 6, 2005

Dr. Johnye Lee 400 Fray Road Cambridge, MA 02138 Dear Johnye:

I am pleased to provide the following multi‐year contract for your continuation in

the position of Vice President and Director of Capek Research per the following terms:

This contract will supersede the current contract between us on January 1, 2006

and will be effective for the period from January 1, 2006 through August 31, 2007. Effective January 1, 2006 your compensation will be $200,000.00 gross per year, a management by objectives bonus of $3,000 gross per quarter and a leased car not to exceed $600 per month. You will be responsible for all taxes due on these amounts. You will continue to be entitled to all company benefits with one modification as follows:

If your employment with Capek Research is terminated at any time before August

31, 2007 for a reason that would entitle you to severance under Capek Research’s standard severance policies, your maximum severance benefit will be the full gross amount of base salary remaining under this contract or the maximum severance benefit stated in Capek Research’s standard severance policies, whichever is greater. To receive this full amount you will have to sign an appropriate waiver as specified in Capek Research’s employee handbook. (For example, if you were terminated and became eligible for severance on June 1, 2006 at which time there would be 14 months remaining on this contract, you would be eligible for a maximum severance benefit of 14 months salary.) This agreement is in lieu of the current Capek Research Severance Pay Plan formulation.


It is hereby noted that if there were to be a severe change in Capek Research such as a dramatic budget cut or a merger with another lab that leads to a fundamental change in the operation of Capek Research, this would be a situation where Capek Research was not able to offer you a job substantially equivalent to your current job and therefore, under Capek Research’s standard policies, this would be a situation where you could choose to be laid off and receive the severance payment specified above.

I look forward to working with you for many years to come.

Agreed upon this 6th day of December 2005.


Johnye Lee __________________(signature)

Johnye Lee, Vice President and Director of Capek Research


Exhibit #4: Proposed Settlement Agreement and Release

SETTLEMENT AGREEMENT AND GENERAL RELEASE

TAKE THIS SETTLEMENT AND RELEASE AGREEMENT HOME, READ IT, AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT. THIS AGREEMENT INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS, AND ITS ARBITRATION‐OF‐CLAIMS REQUIREMENT WAIVES YOUR RIGHT TO A JURY TRIAL. YOU HAVE THE RIGHT TO TAKE ADVANTAGE OF THE FULL CONSIDERATION PERIOD PROVIDED IN ARTICLE 4 AND TO CONSULT YOUR ATTORNEY.

This Settlement Agreement and Release (“Agreement" or "Release") is dated the 6th day

of December 2006 by and between Johnye Lee, an individual residing at 400 Fray Road, Cambridge, MA 02138 (“Employee") and Capek Research, a Delaware corporation with its principal place of business at 2100 Riverside Drive, Cambridge, Massachusetts 02139 (“CAPEK"). WHEREAS

A. Employee has been employed by CAPEK since June 1, 1994, most recently as Vice

President and Director (the “Employment Relationship"). B. Employment Relationship is terminated effective December 7, 2006.

C. In order to resolve any claims which Employee may have against CAPEK, and in

return for the granting by Employee of general and specific releases to CAPEK, CAPEK has offered to Employee, and Employee has accepted, a total Separation Allowance in the gross amount of One Hundred Thirty Seven Thousand Dollars ($137,000.00) (the “Separation Allowance").

NOW, THEREFORE, in consideration of the mutual covenants and promises contained in

this Agreement, and for other good and valuable consideration, the sufficiency and adequacy of which is hereby acknowledged, Employee and CAPEK agree as follows:

1. Termination Date. The Employment Relationship will cease as of December 7, 2006 (the

“Termination Date").

2. No Further Obligations.

(a) Except for the obligations set forth in this Agreement and the Confidential Information and Employee Invention Agreement dated June 1, 1994 (the “Non‐Disclosure Agreement"), a copy of which is attached and incorporated into and made a part of this Agreement as if fully set forth herein, CAPEK shall have no further obligations whatsoever to Employee, and Employee shall have no further obligations to CAPEK, related to or arising out of the Employment Relationship.


(b) Employee expressly acknowledges and agrees that, as of the date of this

Agreement, CAPEK has fully performed any and all duties related to or arising under the Employment Relationship, except those stated in Articles 3, 4 and 6 of this Agreement.

(c) Employee expressly waives and relinquishes any right he or she may have, or

claim to have, to reemployment, recall, rehire, back pay, employment, severance pay, retirement benefits or attorneys’ fees from CAPEK and any related person or entity.

3. Payment on Termination Date.

(a) On the first pay period (December 15th) after termination day (December 7th),

CAPEK shall pay to Employee all compensation due and owing to Employee related to or arising out of the Employment Relationship through the Termination Date, including without limitation the following:

(1) Wages, commissions, salary, bonus and all allowances through the

Termination Date; and (2) Unused and accrued vacation time through the Termination Date. (b) Employee hereby acknowledges that receipt of the amount specified in Section

3(a) of this Agreement does not include consideration to Employee for the releases granted in Article 8 of this Agreement.

4. Consideration for Releases.

In order to resolve any claims that Employee may have against CAPEK, and in return for

the granting by Employee of general and specific releases to CAPEK, CAPEK shall pay Employee the Separation Allowance in the gross amount of One Hundred Thirty Seven Thousand dollars ($137,000.00). CAPEK shall pay Employee the Separation Allowance by check within fifteen days following expiration of the revocation period set forth in section 5(b) of this Agreement.

5. Consideration of CAPEK’s Offer.

(a) Employee shall have not less than twenty‐one (21) and not more than forty seven

(47) days from the date of this Agreement to accept CAPEK’s offer as set forth in this Agreement. If Employee does not notify CAPEK in writing of his or her decision to accept this offer by signing and returning this Agreement within such forty seven (47) day period, this offer will be automatically withdrawn without any further notice to the Employee.

(b) Employee has the right to revoke his or her acceptance of this Agreement for a

period of seven (7) days after signing it. This Agreement will not be effective or enforceable until after the expiration of this seven (7) day period.

6. 401(k) Distribution; Health Insurance; Deductions.


(a) Employee will retain his or her vested benefits under all qualified CAPEK retirement plans and all rights associated with such benefits, as determined under the official terms of those plans. Within a reasonable time after receipt by CAPEK of properly completed withdrawal application forms, the Trustee of the Capek Industries 401(k) Plan shall distribute Employee’s vested account balances in the Plan in accordance with Employee’s lawful and proper direction.

(b) If applicable, medical, dental health coverage provided by or for CAPEK with

respect to Employee shall continue through December 7, 2006. Employee shall then be eligible to subscribe, at Employee’s own expense, for continuation of medical, vision and dental health coverage in accordance with the legal requirements under COBRA.

(c) All consideration provided to Employee under this Agreement, including the

amounts payable under Articles 3 and 4, shall be subject to withholdings and deductions as required by law. Payments made under this Release will not be included in Employee’s compensation for purposes of calculating the benefits to which he or she may be entitled under any employee benefit program, notwithstanding anything in these employee benefit programs to the contrary.

7. Company Property; Business Expenses.

(a) On last day of employment, Employee shall deliver to CAPEK all CAPEK property that is within Employee’s possession, custody or control, including without limitation any or all of the following: corporate credit cards or calling cards, unused airline tickets, keys and I.D. cards, cellular telephone, consignment product, personal computer, company documents and files, company files, including electronic files whether stored on company provided or Employee’s personal computer or other electronic devices, and employee handbooks.

(b) CAPEK shall pay Employee’s outstanding approved business expenses after receipt of Employee’s closing expense report and supporting receipts. Employee shall submit such expense report within thirty (30) days after the Termination Date.

8. General Release.

(a) Excepting only CAPEK’s obligations set forth in Articles 3, 4 and 6 of this Agreement, Employee hereby releases and forever unconditionally and irrevocably discharges CAPEK, its predecessors, successors, assigns, parents, subsidiaries and affiliates, and its and their present and former shareholders, officers, directors, employees, agents and servants (collectively, the “Released Parties") from any and all claims, demands, liabilities, responsibilities, causes of action, obligations, damages, liens, costs and expenses (including attorneys’ fees and costs) arising to the date of the Agreement, whether known or unknown and whether based on tort, contract, statute or ordinance, now or heretofore owned or held or which Employee may own or hold in the future against the Released Parties or any of them. Employee understands that this shall constitute a general release of the Released Parties, severally and collectively.

(b) The general release granted in this article shall extend to and cover without

limitation claims, demands, liabilities, responsibilities, causes of action, obligations,


damages, liens, costs and expenses arising out of or relating in any way to the Employment Relationship, the termination of the Employment Relationship, the employment letter dated December 6, 2005, the CAPEK Severance Pay Plan, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Family and Medical Leave Act and any similar or analogous Commonwealth of Massachusetts law or regulation, including but not limited to the Massachusetts Human Rights Act, or any similar or dissimilar federal, state or local legislation or regulation relevant or applicable to the Employment Relationship.

(c) The general release granted in this article shall not cover any of the Employee’s

rights under the Age Discrimination in Employment Act which may arise after the date on which Employee executes this Agreement, nor shall it cover any obligation for any benefits due to Employee as of the Termination Date under the Capek Industries 401(k) Plan. The general release granted in this article shall also not affect any claims that Employee may have with respect to matters covered by state unemployment benefit laws or any pending claim for state workers compensation claim benefits.

(d) Employee hereby waives any provisions of state or federal law that may require a

more detailed specification of the claims and matters being released pursuant to the provisions of this article.

9. Representations and Promises by Employee.

(a) Disparaging Remarks. Employee shall not, directly or indirectly, make disparaging or derogatory remarks about CAPEK, its business, products, officers, directors, employees, agents or affiliated companies.

(b) Pursuit of Claims. Employee warrants and represents that there are no other

individuals or entities from whom releases should be obtained for any of the claims, demands, liabilities, responsibilities, causes of actions, obligations, damages, liens, costs and expenses released in this Agreement (the "Claims"). Employee has not filed or caused to be filed any lawsuit, complaint, or charge with respect to any Claim that he or she is releasing or waiving pursuant to this Release, and promises never to file or prosecute a lawsuit, complaint, or charge based on the Claims. Employee promises never to seek any damages, remedies, or other relief for him or her personally (any right to which Employee hereby waives) by filing or prosecuting a charge with any administrative agency with respect to any such Claim.

(c) Ownership of Claims. Employee has not assigned or transferred any Claim he or

she is purporting to release or waive under this Release, nor has Employee attempted to do so. Employee shall indemnify and hold harmless the Released Parties from any and all claims, demands, liabilities, responsibilities, causes of action, obligations, damages, liens, costs and expenses should any third party hereafter claim ownership of, or the right to sue upon, any of the Claims released in this Release.

(d) Non‐Disclosure of Confidential Information. Employee acknowledges that the

Confidential Information is a special, valuable and unique asset of the Company. At all times during and after Employee’s employment with the Employer, Employee shall keep the Confidential Information in confidence and trust and shall not, in any way, disclose or


transfer, directly or indirectly, intentionally or unintentionally, any of the Confidential Information to any person or entity or utilize any of the Confidential Information for any purpose, except in connection with his or her duties as an employee of the Employer and with its consent. Employee shall comply with all policies, rules, and procedures established by the Employer from time to time for the protection of the Confidential Information.

(e) Non‐Raiding. Employee agrees that, for a period of two years following the

Termination Date, he or she will not solicit, induce, or in any manner encourage employees of CAPEK to leave the company’s employ. Employee further agrees that during such period, he or she will not offer or cause to be offered employment to anyone who was employed by CAPEK at any time during the six months prior to the termination of his or her employment with the company.

(f) Non‐Solicitation. Employee agrees that, for a period of two years following the

Termination Date, he or she will not directly or indirectly, either on his or her behalf or on behalf of a third party, (i) solicit, induce or encourage any customer of CAPEK to terminate or diminish its relationship or business activities with CAPEK; (ii) seek to persuade any customer or prospective customer of CAPEK to conduct any business or activity with a third party that such customer or prospective customer conducts or is contemplating conducting with CAPEK; or (iii) otherwise interfere with CAPEK’s relationship with any of its customers. Employee acknowledges and agrees that the restrictions set forth in this article are reasonable for the purpose of protecting CAPEK’s legitimate business interests. However, if any of these restrictions is found by any Court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographical area, then the restriction shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

(g) Non‐Competition. For a period of two years following termination of

employment, Employee shall not, without the Employer’s prior written consent, engage, directly or indirectly, in any employment, consulting or activity other than for the Employer relating to any line of business in which the Employer is now engaged, is engaged at such time, is considering, expects or plans to be engaged, or which would otherwise conflict with Employee’s obligations to the Employer. Further, Employee shall abide by any policy concerning conflicts of interest which the Employer may from time to time have in effect.

10. No Admission of Liability.

The parties acknowledge and agree that the releases in Article 8 of this Agreement are granted solely for the purpose of settling all disputes or claims which Employee might have related to or arising out of the termination of the Employment Relationship. CAPEK admits no liability or responsibility for the merits of any claim that might have been asserted by Employee.

11. No Employment Contract.


The parties acknowledge and agree that nothing in this Agreement creates, shall be deemed to create or is evidence of a contract for employment between Employee and CAPEK. The parties acknowledge and agree that the Employment Relationship has at all times been one of employment at will, with either party having the right to terminate the Employment Relationship at any time with or without cause. Such mutual right of termination has been in full force and effect throughout the entire period of the Employment Relationship.

12. Governing Law.

This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts.

13. Headings.

All headings contained in this Agreement are for convenience of reference and shall not be considered in any question of construction or interpretation.

14. Validity.

Should any provision of this Agreement be declared or determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, terms or provisions shall be deemed not to be a part of this Agreement.

15. Final Agreement.

Employee and CAPEK understand that this Agreement is final and binding on all parties, and all parties agree not to challenge its enforceability in the future.

16. Interpretation.

This Agreement shall be construed as a whole according to its fair meaning. It shall not be construed strictly for or against either party. Unless the context indicates otherwise, the term “or" shall be deemed to include the term “and" and the singular or plural number shall be deemed to include the other.

17. Attorneys’ Fees.

The prevailing party in any lawsuit to enforce the terms of this Agreement shall be entitled to reasonable attorneys’ fees and costs of suit.

18. Confidentiality.

(a) Employee shall keep the provisions of this Agreement in strict confidence and shall not disclose its contents to any third party. However, nothing in this article shall preclude Employee from disclosing the provisions of this Agreement in confidence to his or her spouse, legal counsel or tax accountant subject to obtaining an obligation on their


parts not to further disclose such information. Employee understands that this article on confidentiality is a material term of this Agreement.

(b) Employee acknowledges and agrees that his or her obligations under the Non‐

Disclosure Agreement remain in full force and effect and that the provisions of the Non‐Disclosure Agreement shall apply to any and all confidential information and/or trade secrets of CAPEK that Employee learns or to which he or she has access after the Termination Date as a result of his or her using CAPEK’s facility or any CAPEK equipment or property.

19. Employee Rights.

Employee acknowledges that, before signing this Release, he or she was given not less than twenty one (21) days in which to consider this Release. Employee waives any right he or she might have to additional time within which to consider this Release. Employee further acknowledges that: (i) he or she took advantage of the time he or she was given to consider this Release before signing it; (ii) he or she has carefully read this Release; (iii) he or she fully understands it; (iv) he or she is entering into this Release voluntarily; (v) he or she is receiving valuable consideration in exchange for his or her execution of this Release that he or she would not otherwise be entitled to receive; (vi) CAPEK encouraged him or her to discuss this Release with his or her attorney (at the Employee’s own expense) before signing it, and that Employee did so to the extent he or she deemed appropriate; and (vii) he or she has the right to revoke this Release for a period of seven (7) days after signing it.

20. Arbitration of Disputes

(a) Arbitrable Disputes. CAPEK and Employee agree to resolve any claims they may have with each other (except, if either CAPEK or Employee so elect, any dispute for which injunctive relief is a principal remedy) through final and binding arbitration in accordance with this article. Employee also agrees to resolve in accordance with this article any claim between Employee and any other Released Party who offers or agrees to arbitrate the claim in this manner. This arbitration requirement applies to, among other things, disputes about the validity, interpretation, or effect of this Release or alleged violations of it, claims of discrimination under federal or state law, or other statutory violation claims (an “Arbitrable Dispute").

(b) The Arbitration. Except as otherwise provided in this article, the arbitration shall

be conducted in accordance with the then‐current arbitration rules and procedures for employment disputes governing arbitrations administered by the American Arbitration Association (AAA). The arbitration shall take place in the state and county where the CAPEK office to which Employee reported is located. In the event that office is closed or has been relocated, the arbitration shall take place in the state and county where the CAPEK office that is closest to the Employee’s former office is located. Employee represents that such state is a convenient dispute resolution location for him or her. The arbitration will be decided by a single experienced employment arbitrator licensed to practice law in that state. Employee and CAPEK, and any Released Party that agrees to arbitrate an Arbitrable Dispute under this article, agree to submit to the personal


jurisdiction of such state and in any jurisdiction necessary for the enforcement of any arbitration award. The arbitrator may not modify or change this Release in any way.

(c) Discovery. Except as provided in this section, neither party shall have the right

to take depositions or obtain discovery of documents or other information which is relevant to the subject matter of any arbitration which is required under this article. After the appointment of the arbitrator, the parties shall agree on (1) a reasonable number of and schedule for depositions which the parties may take and (2) a reasonable scope and schedule for the production of documents or other information which is relevant to the subject matter of the arbitration. If the parties cannot reach agreement on the number of depositions, the scope of production of documents or other information and the schedule therefor, the arbitrator shall make such determination(s). All discovery shall be completed no later than 30 days prior to the arbitration hearing. The arbitrator shall have the power to enforce any discovery agreed upon by the parties or otherwise required to be taken pursuant to this section by imposing the same terms, conditions, sanctions and penalties as can be or may be imposed in like circumstances in a civil action by a trial court in the state where the arbitration is being held, except the power to order the arrest or imprisonment of a person. No later than 30 days prior to the arbitration hearing, each party shall produce to the other party and the arbitrator a list of the witnesses, documents and other information which such party intends to use at the arbitration hearing.

(d) The Arbitration Award. The arbitration award shall be in writing and shall specify

the factual and legal bases of the award. The arbitration award shall be final and binding on CAPEK and Employee. Any court of competent jurisdiction may enter a judgment consistent with the award. CAPEK and Employee agree to keep the arbitration award confidential. Except as otherwise required by law or court order, Employee and CAPEK agree not to disclose the arbitration award to any third party, except to personnel of CAPEK and its affiliated companies and the parties’ attorneys and accountants with a need to know, provided that each recipient agrees to be bound by the same restrictions as are contained in this Agreement.

(e) Fees and Expenses. Each party shall pay the fees of his or her attorneys, the

expenses of his or her witnesses, and any other expenses that party incurs in connection with the arbitration, but all costs of the arbitration itself, including the fees of the arbitrator, the cost of any record or transcript of the arbitration, administrative fees, and other fees and costs shall be paid in equal shares by the plaintiffs and defendants. Upon the written request of Employee and on a showing of substantial hardship, CAPEK shall advance all or a portion of the Employee’s share of those arbitration costs to the extent they would exceed the out‐of‐pocket costs Employee would have incurred in a lawsuit. The party losing the arbitration shall reimburse the party who prevailed for all attorneys’ fees and expenses the prevailing party paid pursuant to this section, except to the extent prohibited by a statute under which the dispute has been brought.

(f) Exclusive Remedy. Arbitration as provided in this article shall be the exclusive

remedy for any claim that must be arbitrated pursuant to this article. Should Employee or CAPEK attempt to resolve such a claim by any method other than arbitration pursuant to this section, the responding party will be entitled to recover from the initiating party all damages, expenses, and attorneys’ fees incurred as a result of that breach.


21. Entire Agreement.

This Agreement contains the entire agreement of the parties with respect to the

subject matter of this Agreement and supersedes all prior or contemporaneous agreements, understandings and representations, whether written or oral, between the parties regarding this subject. No statements, promises or representations have been made by any party to any other, or relied upon, and no consideration has been offered, promised, expected or held out other than as may be expressly provided in this Agreement. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, personal representatives and administrators, successors and assigns of the parties.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

CAPEK EMPLOYEE

Signed: Name: Mark Taylor, Ph.D. Title: President and CEO Date:

Signed: Name: Johnye Lee, Ph.D. Date:

HARVARD LAW SCHOOL

Problem Solving

Workshop

The Case of the

Encumbered Employee

Part 2: Theory



PSW016-D (20091020)

ENCUMBERED EMPLOYEE: THEORY 1 COPYRIGHT © 2009 HARVARD UNIVERSITY

Beyond Winning Mnookin, Peppet & Tulumello Harvard University Press (2000)

Insert pages 1‐43 here. Harvard Law School’s license for this material does not allow us to include it in this external distribution.

HARVARD LAW SCHOOL

Problem Solving

Workshop

The Case of the Encumbered Employee

Part 3: Relevant Law



PSW017 (20091020)

ENCUMBERED EMPLOYEE: RELEVANT LAW 1 Copyright © 2009 Harvard University

Relevant Law

Non‐Competition & Non‐Disclosure Clauses

All Stainless, Inc. v. Colby, 308 N.E.2d 481 (Mass. 1974) Blackwell v. E. M. Helides, Jr., Inc., 331 N.E.2d 54 (Mass. 1975) Cheney v. Automatic Sprinkler Corp. of Am., 385 N.E.2d 961 (Mass. 1979) Boulanger v. Dunkin’ Donuts, Inc., 815 N.E.2d 572 (Mass. 2004) Merch. Bus. Solutions v. Arst, No. 06‐067, 2006 Mass. Super. LEXIS 95 (Mass.

Super. Ct. Feb. 14, 2006) Boch Toyota v. Klimoski, No. 04‐966, 2004 Mass. Super. LEXIS 258 (Mass.

Super. Ct. June 24, 2004) Cal. Bus. & Prof. Code § 16600 Lycos, Inc. v. Jackson, 2004 Mass. Super. LEXIS 348 (Mass. Super. Ct. 2004) EMC Corp. v. Donatelli, No. 091727BLS2, 2009 Mass. Super. LEXIS 120 (Mass.

Super. Ct. May 5, 2009)

Non‐Solicitation and Non‐Raiding Clauses

Augat, Inc. v. Aegis, Inc., 565 N.E.2d 415 (Mass. 1991) Getman v. USI Holdings Corp., No. 05‐3286‐BLS2, 2005 Mass. Super. LEXIS 407

(Mass. Super. Ct. Sep. 1, 2005) William Gallagher Assocs. Ins. Brokers v. Everts, No. 1999‐00519C13, 2000 Mass.

Super. LEXIS 705 (Mass. Super. Ct. Sep. 6, 2000) Darwin Partners, Inc. v. Signature Consultants LLC, No. 00‐0277, 2000 Mass.

Super. LEXIS 614 (Mass. Super. Ct. Mar. 24, 2000) Loral Corp. v. Moyes, 219 Cal. Rptr. 836 (Ct. App. 1985)

Documents

The Case of the Encumbered Employee - USC Gould School of Law