Why Did The Lawyer Put This In My Contract?: The Merger Clause

I negotiate and review a whole lot of contracts. I've been doing it so long that I forget some of this stuff looks like gibberish to normal people. By normal, I mean non-lawyers, of course. I thought I'd pick out some regular legal gobbledy-gook and deconstruct it for you here. Today, I'd like to talk about the merger clause, also called the integration clause. You may see something that looks like this in your employment agreement, severance agreement, noncompete agreement, or other contract your employer hands you to sign.

This document contains the entire agreement between the parties. This Agreement cannot be modified unless an authorized representative of the company and I agree to do so in writing. 

 Looks harmless enough. The language is pretty clear, right? It's the whole agreement between your employer and you. You can't change it and neither can they unless you both sign a new piece of paper modifying the agreement or canceling it.

And yet, it's an incredibly important two sentences.

Here's why your employer's lawyer put the merger clause in the agreement:

Your employer wants the language because they don't want you to claim that they promised you a big bonus two months later, or that they told you not to worry about that noncompete stuff. Their lawyers put it in so they make sure you can't come after them based on a side verbal agreement.The language is there to protect your employer.

But it also protects you.

Here's why you should care about your merger clause:

Let's say you sign an employment agreement that has a noncompete provision, something that says you can't work for a competitor for a year or two. The agreement also sets out your salary, benefits, and job title. It says you can be fired at-will, meaning you can be fired for any reason or no reason at all.

Scenario 1: You work 6 months and then your employer tells you that they can't afford your salary anymore. The new salary is a 10% reduction of what they promised in the agreement. You can take it or leave it. You can't afford to lose your job, so you take it. You never sign anything agreeing to the change. When you get a job offer from the competitor, you take another look at the employment agreement. You realize the employer has breached the agreement on your salary. Their breach may be a complete defense to the enforceability of the noncompete provision. No, it isn't a magic wand that makes it go away. But you have a pretty good defense, and they might owe you money to boot.

Scenario 2: After a year, the employer drops its insurance coverage because it's too expensive. But they never have you sign anything agreeing to modify your contract to agree to this. They're in breach of the contract. You might have another defense, and they might owe you the money you have to pay for insurance.

Scenario 3: You're fired. Your employer hands you a severance agreement offering 2 weeks of salary in exchange for a release. It also has a merger clause saying it's the entire agreement between the parties. The new agreement doesn't mention your noncompete obligations. You decide to accept the 2 weeks and move on. You get an offer from a competitor. Can you take it? You betcha. The old agreement is gone with the wind. Your former employer might have a malpractice claim against the lawyer who forgot to have you reaffirm the noncompete obligations in the new agreement, but they have no claim against you.

Who knew two sentences could mean so much? Now you know why lawyers put merger clauses into your employment agreements, and why every sentence matters.