ILMA Compoundings September 2016 - 38

LEGAL EASE

Another Look at
Noncompete Agreements
Jeffrey L. Leiter

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

ILMA Compoundings September 2016

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