The enforcement of non-competes is most troublesome in the at-will employment context. This is a recurring topic on this blog, and countless others. Courts have taken divergent approaches to analyzing the consideration issue.
Generally, the rules concerning enforcement of covenants for at-will employees fall into one of three categories:
(1) Continued employment is sufficient to enforce a covenant not to compete against an at-will employee if she signs it after the start of employment. This may be the majority rule, although I haven't broken it down state-by-state.
(2) Continued employment is insufficient to bind an at-will employee to a newly presented covenant not to compete unless the employee receives some true, real advantage in connection with signing the contract. A substantial minority of states, including Minnesota, adopt some variant of this rule.
(3) Even if an at-will employee signs a non-compete at the start of her employment, continued employment is insufficient unless the employment continues for a substantial period of time. This is Illinois' outlier Fifield rule.
Recently, the Wisconsin Court of Appeals certified a legal question to the state supreme court for review, concluding that existing case law relating to consideration was hopelessly in conflict. And just last week, the Supreme Court of Kentucky weighed in on the "continued employment" rule - with an opinion that seems to be of little value.
The Court held that continued employment was insufficient consideration to enforce a covenant not to compete that an at-will employee signed. The case is Charles T. Creech, Inc. v. Brown. Ultimately, though, the opinion does not seem to provide any rules. Instead, the Court simply found that given the particular facts of the case, the relatively broad non-compete lacked consideration. That in and of itself seemed odd, since the parties didn't conduct must discovery.
Although the opinion has flaws, it's still useful for what the Court determined to be significant in regards to the consideration inquiry. It honed in on the following factors:
(1) The employer undertook no new obligations in the contract.
(2) The contract lacked any indicia of an employment agreement, such as provisions relating to salary, benefits, and conditions of discharge.
(3) Brown, the employee, was a 16-year employee with pre-existing experience in the industry, meaning he didn't receive specialized training in response to signing the non-compete.
(4) Brown was not promoted and did not sign the agreement in connection with any real new advantages, such as a bump in pay or some access to new training or new information. The employer seemed to demote him.
(5) Most unusually, the employer did not threaten Brown with termination if he refused to sign the agreement. (It's hard to see how a counterfactual would be more persuasive evidence of consideration.)
While the result in the employee's favor may be appropriate given the other problems with the non-compete, the opinion does nothing more than leave a murky area of the law even cloudier. The Court gave no rule - and only hinted at a standard. Therefore, employers still don't have clarification on what they would need to provide at-will employees in the way of proper consideration to support a non-compete covenant.
The best practice still is to afford an at-will employee with some real, tangible advantage that a court will be able to grasp. The concept of continued employment is somewhat nebulous and in certain circumstances illusory. It makes enforcement difficult, particularly with long-term employees. Potential benefits could include:
(1) A raise, bonus, or promotion.
(2) The ability to terminate only for cause.
(3) Severance if the employer must terminate without cause.
In many states, any one of these would vest a non-compete with consideration. In my view, it also is beneficial to include the covenants in a more robust contract of employment, as opposed to a stand-alone document.
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