Former Bank Director Loses Benefit Cutoff Challenge

April 13, 2006 ( - A federal judge in Illinois has ruled that a bank director was, in fact, a bank employee so he was prohibited from working for a competing bank.

US District Judge Charles Ronald Norgle of the US District Court for the Northern District of Illinois issued the ruling in a lawsuit by plaintiff James Hearns against Interstate Bank over Interstate’s decision to remove the retired employee as a director and cut off the annual $96,000 retirement benefits it had agreed to pay as long as Hearns would not compete with Interstate while in its “active employ,” BNA reported.

Norgle turned away arguments advanced by Hearns that Interstate breached its retirement benefits contract by failing to continue his retirement payments. Hearns insisted that when acting as Interstate Bank’s director, he was not an employee under the common law definition of the term and did not violate the anti-competition clause in his retirement benefits agreement with Interstate.

Applying state contract law, Norgle found that the contract unambiguously provided that Hearns was employed by Interstate Bank. In support of its finding, the court said it was clear from contractual language that the parties contemplated that Hearns’s activities as director of Interstate Bank would constitute his employment by Interstate Bank.

Since Hearns participated in the formation of a competing bank while employed by Interstate Bank, there was no question that Hearns violated the anti-competition clause of the contract, Norgle said. Such conduct constituted a material breach of the contract, and justified Interstate Bank’s refusal to perform its contractual duties, Norgle said.

The case is Hearns v. Interstate Bank, N.D. Ill., No. 05 C 175, 3/31/06.