LEGAL CONSIDERATION: WHAT IS IT AND WHY IS IT IMPORTANT?

A noncompete agreement is a contract. As such, the contract must be supported by what is called “consideration.” Consideration is value paid for a promise. For example, if you sign a contract with a man, agreeing to buy his car, his consideration is the car which he promises to give to you. Your consideration is the money that you pay for the car.

In the employment context, an employer must give the employee consideration for signing a noncompete agreement. If the employee signs at the time of hiring, the consideration is the salary paid to the employee.

The more difficult question is, “what happens when the employee has already been working on the job for months or years and is then confronted by his employer with a request to sign a noncompete”? In a recent case from Texas (Powerhouse Prods., Inc. v. Scott, 2008 WL 3196174, Dallas Aug. 8, 2008), the court ruled that the noncompete was not valid because continued employment cannot support a non-compete agreement. In other words, the court required the employer to give or pay the employee something more for in return for signing the noncompete.

Virginia courts, disappointingly, have been very inconsistent on this issue. In 1989, the Virginia Supreme Court (in Paramount Termite Control v. Rector) found continued employment did constitute sufficient consideration to uphold a noncompete agreement signed after employment began. However, a Circuit Court from the City of Richmond one year later in 1990 held (in Johnson v. E. R. Carpenter) that the employee’s future at-will employment did not constitute consideration for the employee’s execution of a noncompete agreement.

My take: These cases are very complicated and fact specific. Don’t sign anything without first having your situation and the noncompete agreement reviewed by an experienced employment attorney.

Dan Frith

Dan Frith

Dan Frith has over 25 years of experience representing individuals and families in cases of medical malpractice throughout Virginia. He has been named "Best Medical Malpractice Attorney" by Roanoker Magazine and is a member of the Million Dollar Advocates Forum. To speak with Dan, contact him by email at dfrith@frithlawfirm.com.