“Must an employee be paid to sign a non-compete?”

Question: Is it true that a non-compete agreement can only be enforced when the employee signing it is compensated for giving up their rights?

I worked for a company as a 1099 independent contractor for several years. Then I was brought on as a W-2 employee, and the compensation remained the same.

When I became a W-2 employee, I was required to sign a new and detailed non-compete agreement, but was not compensated extra for signing it.

Is it enforceable?

New York, New York

Answer: Dear Bernard, the answer to your question varies with which state the employee lives in, often which court is faced with the issue, and other factors, as well.
 There are many factors that go into determining if a “non-compete” is enforceable. How the law views non-compete agreements varies from state to state, sometimes from judge to judge, and always depends on a weighing of several factors, among them (a) whether it is reasonable in time and geography, (b) whether the employee was terminated without cause, (c) whether the employee had access to secrets, (d) whether the non-compete is necessary to protect the employer’s interests, and (e) whether the employee may have been truly coerced into signing it.

 Generally, for any agreement of any kind to be enforceable, there must be some “exchange of value,” what lawyers call “consideration.” As a matter of general contract law, for an agreement to be enforceable, both sides have to “get something.” Lawyers call that the “consideration requirement.” This is probably what you are referring to, that is, you believe you must be paid something for the non-compete to be enforceable.
 In some states, courts hold that “continued employment” of the employee by the employer is the necessary “consideration” in a non-compete agreement. Some states and some judges require, too, that the employee receive some actual payment, while in some states and courts this is not required. Instead, some states and courts see “continued employment” to be sufficient “consideration” to make the agreement presumptively enforceable.

 Unfortunately for you, the law in New York State adheres to the “continued employment” view of consideration for a non-compete. New York, like New Jersey and Delaware, views the continued employment of the employee to satisfy the “consideration requirement.” On the other hand, such states as Pennsylvania does not. Interestingly, though, Pennsylvania and Delaware courts do view either (a) a promotion, or (b) any increase in compensation, to be sufficient consideration for a non-compete agreement.

 Perhaps if employers had to compete, themselves, by being “nicer” to their employees, they would not fear their employees going to work for their competitors. To my mind, non-competition agreements are absolutely wasteful and unproductive, and a hypocritical requirement of employers who claim to believe in “free enterprise.” So many employers rant and rave against limits on their activities based on laws and regulations, but think nothing of trying to keep hard-working people from working for their competitors by running to courts for protection.

Sorry not to provide you the “news” you hoped for, but better to know the truth.

If you are interested in obtaining a Model “Response to Request that You Sign a Non-Compete Agreement” for your use in attempting to avoid a non-compete, or limit its damage to your career, [click here].

Thanks for writing in.

          Best, Al Sklover   

© 2011 Alan L. Sklover, All Rights Reserved.