Ongoing Employment Is Not Sufficient Consideration for the Enforcement of a Non-compete
Uncertainty existed when we entered our blog post in April which discussed the consideration required for the enforcement of a non-compete. On June 11, the Colorado Court of Appeals ruled, however, that continued employment is not sufficient consideration for the enforcement of a non-compete.
In Lucht's Concrete Plumbing v. Horner, the employee executed a non-compete agreement after working for the company for two years. The employee was not given a pay increase, promotion or additional benefits in consideration for the new commitment. Later, the employee went to work for a competitor in violation of the non-compete and the employer sought to enforce the non-compete.
For a contract to be enforced, each party to the agreement must provide the other with something of value. That "something of value" is called the consideration for the contract. In Lucht's Concrete Plumbing, the issue was whether continued employment of the employee was sufficient consideration for the enforcement of the non-compete. The employer in Lucht's Concrete Plumbing argued that that an employer's forbearance of its right to discharge an at-will employee is sufficient consideration.
The Court of Appeals rejected the employer's arguments and held that continued employment does not create consideration for a non-compete once an employee begins working for an employer. The court reasoned that an employer might agree to continue the employment of the employee if he agrees to sign the non-compete but nothing prevents the employer from discharging the employee at a future date. Accordingly, the employer's promise "requires nothing more than was already promised in the at-will agreement".
Lucht's Concrete Plumbing is a favorable decision for employees and, under the right circumstances, may mean that non-competes signed by existing employees are not enforceable. it is important to remember, however, that most non-competes are signed when employees are initially hired and are a condition of employment. In those cases, employers will argue that consideration did exist (that is, the job) for the non-compete regardless of this new decision. It is also important to remember that this is a decision from the Colorado Court of Appeals. The decision could be appealed to the Colorado Supreme Court.
