Friday, May 1, 2009

Insurance Industry Non-Compete Supported By Valuable Consideration - But Still Overbroad (Hejl v. Hood, Hargett & Assoc)

The Court of Appeals of North Carolina issued another employee-friendly ruling on a non-compete claim. In this particular dispute, two issues were up for review. First, the court had to determine whether $500 given to an existing employee for his execution of a non-compete was sufficient consideration for the contract. Second, the court addressed the employee's argument that the contract was too broad to be enforced.

At trial, the court ruled in favor of the employee on the consideration argument, but the appellate court rejected that reasoning. The issue of consideration in after-thought covenants has always been a fertile ground for litigation. States differ in their approaches, with many holding that continued employment is sufficient consideration for an at-will employee's non-compete agreement.

North Carolina is different. It requires new or separate consideration. In this case, the court found that $500 was sufficient to meet this requirement. It also noted the following would suffice:

Continued employment for specified amount of time;
Raise, bonus or other change in compensation;
Additional training;
Uncertificated shares of ownership;
Other increase in responsibility.

The court noted there is a difference between separate consideration and adequacy of that consideration. Clearly, the $500 payment was separate consideration. Whether it was adequate was irrelevant under North Carolina law.

However, the employee still prevailed in the end, just on separate grounds as he did in the trial court. The customer non-compete clause which bound the insurance broker-employee was too broad. In particular, the court held that since it included even prospective customers to whom the employee may have only quoted insurance products (but not necessarily sold them to), the covenant exceeded the protectable interests the employer had. Therefore, it was void and unenforceable.


Court: Court of Appeals of North Carolina
Opinion Date: 4/7/09
Cite: Hejl v. Hood, Hargett & Assocs., Inc., 2009 N.C. App. LEXIS 377 (N.C. Ct. App. Apr. 7, 2009)
Favors: Employee
Law: North Carolina

No comments:

Post a Comment