What is Legal Consideration?
Noncompete agreements (also called covenants-not-to-compete) are contracts and require certain legal formalities to be valid and enforceable. One of the necessary elements for a valid noncompete agreement is “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. As a general rule, when a noncompete agreement is attached to, or made a part of, an employment contract or offer, the employer’s agreement to hire the employee is sufficient consideration to support the employee’s promise not to compete upon the termination of the employment.
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”? This situation arises more frequently than you think. In a recent case from Texas ( Powerhouse Prods., Inc. v. Scott , 2008 WL 3196174, Dallas Aug. 8, 2008), a 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 (like a bonus) in return for signing the noncompete.
Virginia courts, disappointingly, have been very inconsistent on this issue and their rulings provide little guidance to the average employee. For example, in 1989, the Virginia Supreme Court (in Paramount Termite Control v. Rector , 238 Va. 171) found continued employment did constitute sufficient consideration to uphold a noncompete agreement signed after employment began. However, one year later a Circuit Court from the City of Richmond held (in Johnson v. E. R. Carpenter , 20 Va. Cir. 380) that the employee’s future at-will employment did not constitute consideration for the employee’s execution of a noncompete agreement.
The advice we provide clients is to proceed carefully.
- 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