ILMA Compoundings September 2016 - 38

LEGAL EASE Another Look at Noncompete Agreements Jeffrey L. Leiter I routinely am asked by ILMA members and clients about the ability to enforce post-employment restrictive covenants - that is, noncompete agreements restricting an individual's ability to compete with his or her former employer or solicit the employer's customers or employees. A current trend in litigation over post-employment contracts involves whether there has been "adequate consideration" for the restrictive covenant. In law school, all lawyers are trained that consideration, which is the mutual exchange of something of value, is necessary for a contract to be enforceable. A post-employment restrictive covenant is a contract, so there must be "adequate consideration" for it to be enforceable. Courts have been asked in recent years to re-examine the issue. For example, the Illinois Court of Appeals set aside long-standing precedent in 2013, holding that adequate consideration for a restrictive covenant applies only if the employee remains employed for at least two years after signing it. The Illinois state court said that the two-year rule applies, regardless of whether the employee signed the restrictive covenant as a new or existing employee and regardless of whether the employee voluntarily resigned or was fired. However, over the same time period, the federal courts in Illinois have declined to apply the two-year rule, instead considering other factors, such as compensation and the circumstances surrounding the employee's termination of his or her employment. Meanwhile, courts in Kentucky, North Carolina and Pennsylvania have held recently that consideration beyond mere continued employment is required to enforce a noncompete agreement. The North Carolina Court of Appeals, for example, said a $100 payment made to a former employee when signing the postemployment noncompete was adequate consideration, even though it was not referenced in the agreement. The Wisconsin Supreme Court said last year that employers may require at-will employees to sign post-employment restrictive covenants without offering additional consideration beyond continued employment; however, the court did not state how long the employment must continue after the noncompete is signed. My point? These decisions and others show a willingness on the part of former employees to challenge existing precedent of adequate consideration when it comes to post-employment restrictive covenants. My tips? Check on your state's law with your counsel. Employers, for example, may want to provide consideration, such as a cash payment, additional paid time off or guaranteed severance. In the absence of specific judicial guidance, providing more than de minimis consideration may be a prudent business decision. Regardless of the amount or type of consideration, the restrictive covenant should explicitly recite the consideration provided to the employee for signing it and the employee should acknowledge its adequacy. For employers with operations in multiple states, the restrictive covenant should include a contractual choice-of-law provision that specifies which state's laws will govern the postemployment agreement. Ideally, you are in a state with favorable laws regarding the enforceability of restrictive covenants. Vol. 66 No. 9 * 38 * September 2016 Compoundings

Table of Contents for the Digital Edition of ILMA Compoundings September 2016

FROM THE CEO
BOARD BRIEF
NOTES FROM MSCI
THE HEART OF ILMA
THE ARGUS ANALYSIS
VOICES & VIEWS
INTERNATIONAL INSIGHT
SPEAKER SPOTLIGHT
FAMILY BUSINESS
FINANCIAL FREEDOM
RULES & REGS
POWER PLAY
LEGAL EASE
THE WHITE PAPER
ADVERTISERS INDEX
ILMA Compoundings September 2016 - 1
ILMA Compoundings September 2016 - 2
ILMA Compoundings September 2016 - 3
ILMA Compoundings September 2016 - 4
ILMA Compoundings September 2016 - FROM THE CEO
ILMA Compoundings September 2016 - 6
ILMA Compoundings September 2016 - 7
ILMA Compoundings September 2016 - 8
ILMA Compoundings September 2016 - BOARD BRIEF
ILMA Compoundings September 2016 - 10
ILMA Compoundings September 2016 - 11
ILMA Compoundings September 2016 - 12
ILMA Compoundings September 2016 - NOTES FROM MSCI
ILMA Compoundings September 2016 - 14
ILMA Compoundings September 2016 - THE HEART OF ILMA
ILMA Compoundings September 2016 - 16
ILMA Compoundings September 2016 - 17
ILMA Compoundings September 2016 - 18
ILMA Compoundings September 2016 - 19
ILMA Compoundings September 2016 - 20
ILMA Compoundings September 2016 - THE ARGUS ANALYSIS
ILMA Compoundings September 2016 - 22
ILMA Compoundings September 2016 - 23
ILMA Compoundings September 2016 - VOICES & VIEWS
ILMA Compoundings September 2016 - 25
ILMA Compoundings September 2016 - INTERNATIONAL INSIGHT
ILMA Compoundings September 2016 - 27
ILMA Compoundings September 2016 - SPEAKER SPOTLIGHT
ILMA Compoundings September 2016 - 29
ILMA Compoundings September 2016 - FAMILY BUSINESS
ILMA Compoundings September 2016 - 31
ILMA Compoundings September 2016 - FINANCIAL FREEDOM
ILMA Compoundings September 2016 - 33
ILMA Compoundings September 2016 - RULES & REGS
ILMA Compoundings September 2016 - 35
ILMA Compoundings September 2016 - POWER PLAY
ILMA Compoundings September 2016 - 37
ILMA Compoundings September 2016 - LEGAL EASE
ILMA Compoundings September 2016 - 39
ILMA Compoundings September 2016 - THE WHITE PAPER
ILMA Compoundings September 2016 - 41
ILMA Compoundings September 2016 - ADVERTISERS INDEX
ILMA Compoundings September 2016 - 43
ILMA Compoundings September 2016 - 44
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