Non compete agreements forced on employees after they are employed may not be enforceable

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A Connecticut corporation was seeking new financing to help advance the company. An investor advised the company that it should have select employees sign into employment contracts to insure the company’s stability and consistency. The plaintiff, one such employee, signed the employment agreement. Another investor viewed the agreement and thought the additional monetary component was unnecessary. The company, now defendant, decided to draft another agreement which would protect the intellectual property of the company and provide a non-compete clause, but without providing any consideration to the employees. Consideration in this case is some form of compensation given to an employee to insure their compliance with an agreement and requires both parties to do something in addition to what he/she is originally asked to do.

The original employment contract stated that the company would raise the plaintiff’s salary, but that it would also pay all compensation unpaid up to the date of termination plus both remainder of the plaintiff’s base salary and an additional six months pay if the plaintiff was terminated without cause. In return, the plaintiff agreed not to seek employment with any competitor of the company for six months after she ended her work for them. Since this had been accomplished with the original employment contract, it satisfies the rule of consideration and is enforceable.

Conversely, the amended agreement did not mention a salary increase or any compensation in the event of termination. It stated that “…in the event that the plaintiff’s employment relationship with the company terminates for any reason, whether voluntary or involuntary…the plaintiff shall continue to comply with certain provisions of this agreement”, specifically that the plaintiff shall not enter into any employment contracts with competitors. The plaintiff contends that language drafted by defendant in the contract only extends the non-compete clause indefinitely. The defendant argued that she knew the agreement’s changed conditions and that once terminated, the plaintiff could immediately start working for a competitor, thus providing consideration and making the contract valid.

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A Connecticut Court concluded in a similar case that “when an employer issues an employment manual that substantially interferes with an employee’s legitimate expectations about the terms of employment…the employee’s continued work after notice of these amended terms cannot be taken as evidence of the employee’s consent to those terms…” The employee’s only choices would be to resign or continue to work under these new conditions, either of which would contradict employee rights. The Court in the corporation’s case found that the amended agreement lacks consideration and is thus unenforceable.

Posted February 20, 2013

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