cases, commentary and news related to restrictive covenants
Monday, October 11, 2010
Post-Employment Compensation Can Provide Consideration for Afterthought Covenant (Thiesing v. Denstply Int'l)
Minnesota is one of a number of states that prohibit an employer from binding an employee to an afterthought non-compete agreement - one signed after the beginning of employment - absent independent consideration. The most common types of consideration are special training, the opportunity to participate in incentive programs, payment of one-time bonuses, or a promotion.
But another, frequently overlooked type of consideration that is not as immediately recognizable is "post-employment compensation."
How does this work, and how can it provide the requisite consideration to support a covenant?
The employee's agreement specifically provides that if an employee is unable to obtain work reasonably commensurate with his or her education and experience as a result of a covenant, then the employer must make the employee whole in terms of compensation for a the shorter of the period of unemployment or the expiration date of the covenant.
The agreement also should contain a make-whole provision so that if an employee finds a lower-paying job, the employer must pay the difference between the new wage and that the employee earned at the time of termination.
Not every post-employment compensation provision will satisfy contract formation requirements. For instance, some provisions place a subjective standard on the employee to diligently or conscientiously look for work and document efforts to the ex-employer. As should be apparent, there is wide latitude for the employer to deny compensation under such clauses. Courts in Minnesota have held that when an employer chooses to enforce a non-compete, a conditional promise to pay - that is, upon the employer's finding that the employee diligently searched for work - is illusory. An unconditional promise, however, will provide consideration.
In contract provisions calling for post-employment compensation, an employee must examine whether the employer retains discretion to pay or to impose conditions on pay. This ordinarily will determine whether the consideration element can be met.
Court: United States District Court for the Eastern District of Wisconsin
Opinion Date: 9/28/10
Cite: Thiesing v. Dentsply Int'l, Inc., 2010 U.S. Dist. LEXIS 102373 (E.D. Wis. Sept. 28, 2010)
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