Continued Employment is Adequate Consideration for Non-compete Agreement
The Colorado Supreme Court has held that continued employment of an at-will employee is adequate consideration for a non-compete agreement. Lucht’s Concrete Pumping, Inc. v. Horner (Colo. 2011).
To protect their interests, employers may ask employees to sign non-compete agreements. In these agreements, employees agree not to work in their chosen field for a period of time and in a geographic area following separation from employment. To be enforced, these agreements must meet several requirements and be supported by adequate consideration. Consideration is something of value that is given to the employee in exchange for his or her promise. For new employees, the job itself is adequate consideration. But it has long been the view that continued employment is not adequate consideration for current employees to sign such agreements. That is, until now.
The case involved Tracy Horner, a former manager and at-will employee of Lucht’s, who quit his job and went to work for a competitor three days later. The year before Horner had signed an agreement saying that if he left his position he would not “directly or indirectly solicit, induce, recruit or encourage any of [Lucht’s] employees or customers to leave [Lucht’s]” for 12 months after separation and that he would not share any of Lucht’s trade secrets or other confidential information. Lucht’s sued Horner for breach of contract, breach of duty of loyalty, breach of fiduciary duty, and misappropriation of trade value. Lucht’s also sued Horner’s new employer for intentional interference with contract and for aiding and abetting Horner. The lower court held that continuing to employee at at-will employee was not adequate consideration for the agreement because nothing prevents the employer from terminating the employee at any future time. The Colorado Supreme Court disagreed, however, and said that an employer’s forbearance of its legal right to terminate an existing at-will employee is adequate consideration because the employer is refraining from exercising a legal right.
Going forward, Colorado employers will not have to provide additional consideration to current employees for signing non-compete agreements. Employers must, however, ensure that Colorado’s other requirements for enforceable non-compete agreements are met. Please see our FYI Employment Agreements: Non-competition, Confidentiality, and Non-solicitation Agreements for more information.