THE SANCTITY OF CONTRACTS (AND ITS LIMITATIONS)

The US Supreme Court just issued an opinion directing federal courts to interpret Benefits Welfare Plans between employers and employees (including, often, retired employees) just like any other type of contract.  Justice Thomas’ opinion for a unanimous court reads like a paean to the sanctity of contracts.

Yet a cautionary paragraph in the middle of the opinion stands out.  The story would have been different, the Court noted, if it had been dealing with a Pension Plan instead.  For those, terms must follow guidelines set by the Employee Retirement Income Security Act.

And so it goes for many other types of contract.  Most state laws, including Florida’s, restrict what terms may be included in insurance policies, for instance.  But perhaps the most wide-spread form of contract whose validity is restricted by law are non-compete agreements.  They need to be “reasonable” and carefully crafted to track the employer’s legitimate business interests.  Neither drafting nor seeking to enforce those agreements should be left to the careless or the amateur.