Forfeiture-for-Competition Agreements (‘‘Clawbacks’’): An Alternative to Traditional Non-Competition Agreements?

INTRODUCTION After working for nearly 15 years as a grocery store manager for Food Fair Stores, Inc., Carl Greeley voluntarily resigned from Food Fair to become a retail counselor at a competing grocery store. During his employment with Food Fair, Greeley participated in Food Fair’s noncontributory bonus and retirement plan, which Food Fair funded solely through its profits. The plan provided that Greeley would be eligible for a distribution from his retirement account upon the earlier of his death or attainment of age 65, but further stipulated that Greeley would not be entitled to any distribution if he competed with the company. Notwithstanding the clear terms of the plan, shortly after Greeley resigned from Food Fair to accept a position with its competitor, he filed a claim with Food Fair for $8,514.10 allegedly owed to him under the plan. Food Fair promptly informed Greeley that, by choosing to work for a competitor, he had forfeited his benefits under the plan. After all, the plan was clearly a binding contract which relieved Food Fair of its obligation to pay Greeley if Greeley chose to work for a competitor.