Employer cost for post employment non-competes on the rise
November, 2004
In today's cutthroat business environment, employers use ever popular non-compete agreements to keep valuable employees with access to trade secrets and confidential and proprietary information from leaving and using this information at a competitor employer. Like with every contract, all non-competes require consideration. By providing adequate consideration to an employee for signing a properly drafted and reasonable non-compete agreement, employers may avoid the cost of employees sharing valuable information with a competitor. Employers may also avoid the costs of litigating over the agreement, running a risk a court may void the non-compete.
The Labriola Case
Mr. Labriola commenced employment at Pollard Group, a custom printing business, as an at-will sales person. Five years into his employment, Labriola and Pollard Group executed a noncompete agreement. The non-compete agreement prohibited Labriola from accepting employment with a competitor within 75 miles of Pollard Group for three years after his employment with Pollard Group ended. Labriola received no additional benefits for executing the post employment non-compete agreement.
After Labriola signed the non-compete, Pollard Group unveiled a new compensation plan for sales persons. Labriola contemplated that the new compensation system would reduce his annual income. As a result, Labriola sought employment with one of Pollard Group's competitors. When Pollard Group learned of Labriola's activity, Pollard Group contacted Labriola's prospective employer and expressed intent to enforce the non-compete. The competitor did not hire Labriola and Labriola sued Pollard Group, requesting the Court render the non-compete unenforceable.
After Labriola's case reached the Washington Supreme Court, the Court reiterated the general rule that employment alone is sufficient consideration for a non-compete agreement signed by an employee before commencement of employment. Regarding post-employment non-competes, the Court held that consideration in addition to employment is required. Although the Court recognized that continued employment and training may serve as sufficient consideration for post-employment non-competes, the Court suggests a best practice of offering additional consideration beyond continued employment, such as increased wages, a bonus, a promotion, a fixed term of employment, or perhaps granting access to protected information.
Tips on Consideration
- Contemplate making offers of employment contingent upon the employee signing a non-compete agreement that is reasonable in duration, geographic area, and scope of activity.
- Think about requiring an employee sign a non-compete agreement before he or she commences employment.
- If circumstances require an employee to sign a non-compete after he or she has commenced employment, then explicitly offer additional consideration in the form of a bonus, promotion, additional pay, fixed term of employment, or access to protected information.
- If you are considering offering training as additional consideration for a post-employment non-compete, state what the training is, state that the training serves as consideration, and make sure that the training differs from training the employee already regularly receives.