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A Key Defense
The courts will not enforce any agreement (including a non compete agreement) if it lacks consideration. What is consideration? It means, there must be something of value that a party is seeking to get in exchange for what he is giving. A one-sided promise is not enforceable. Plus any modification of a contract must be supported by consideration. Otherwise, contract (or modification) will not be enforceable.
Special Examples: Non-Competes
An employee’s acceptance of employment at-will is sufficient consideration to support a restrictive agreement by an employee. Morgan’s Home Equip. Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838, 846 n.14 (1957).
Since the employment at-will relationship is mutual and either party can terminate it any time, there is no reason to distinguish between the employee’s consent to continue under new terms from the employer’s consent not to terminate unless the employee accepts the new terms. See Simko, Inc. v. Graymar, 55 Md. 561, 567, 464 A.2d 1104 (1983).
Time of Endorsement
Courts in various jurisdictions differ on whether a covenant to compete must be signed at the beginning of the employment relationship in order for it to be valid. For example, certain jurisdictions hold that even though an employer fails to reference any restriction on post-employment competition, a covenant signed after the employment commenced provides sufficient consideration for an enforceable covenant. See, e.g., Herr v. Heiman, 75 F.3d 1509, 1514-15 (10th Cir.1996); Ellis v. James V. Hurson, 565 A.2d 615, 620 (D.C. 1989)(substantial period of employment following signing of covenant); Paramount Termite Control, 380 S.E.2d at 926; Marine Contractors Co. v. Hurley, 365 Mass. 280, 310 N.E. 2d 915 (1974)(subsequent covenant is ancillary to original employment contract); Arthur Young & Co. v. Galasso, 142 Misc.2d 738, 538 N.Y.S.2d 424, (Sup. Ct. 1989); Puritan- Bennett Corp. v. Richter, 8 Kan.App.2d 311, 657 P.2d 589, 591 (1989).
Other states hold that a non compete agreement that is not included in the original employment contract, but added later in a contract for ongoing employment, is voidable for lack of consideration. Universal Hosp. Serv. Inc. v. Henderson, D. Minn., No. 02-951, 5/20/02 (there, the court denied an employer’s effort to restrain a former employee from working for competitor, finding non compete agreement may be invalid because not signed until five days after employment commenced); Pacific Veterinary Hosp. v. White, 72 Or.App. 533, 696 P.2d 570, 573 (1985), citing 1983 OREGON LAWS CH. 828, § 1; Morgan Lumber Sales Co. v. Toth, 41 Ohio Misc. 17, 321 N.E.2d 907
(1974).
A non-competition agreement signed after an employee has begun working can be sustained only if supported by promise or payment. Insulation Corporation of America v. Brobston, 446 Pa. Super. 520, 529; 667 A.2d 729, 733 (1995); Satellite Indus. v. Keeling, 396 N.W.2d 635, 639 (Minn.App. 1986). b. Continuation of employment is not sufficient consideration for a covenant despite the fact that the employment relationship was terminable at-will. George W. Kistler, Inc. v. O’Brien, 464 Pa. 475, 347 A.2d 311, 316 (1975).
The courts look to whether the employee enjoyed a beneficial change in status, and if so, sufficient consideration will exist to support a restrictive covenant agreed to after employment commences. M.S. Jacobs & Assocs. v. Duffey, 452 Pa. 143, 303 A.2d 921, 922 (1973).
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