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Can Existing Employees Be Forced to Sign Non-Competes in NY?


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3/31/2017
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I get asked this question. A lot.

But, in order to make sure we're all on the same page, here's how the fact pattern typically plays out:

Company decides that from this day forward, all employees must sign a non-compete, barring them from working in the same industry within a 25 mile radius for a period of two (2) years. Some employees are really bothered by this.

Why Some Employees Are Uncomfortable Signing the Non-Compete Mid-Stream

There are a few possible reasons for this, chief among them being the following two (2):

(1) They were thinking of leaving - At the risk of stating the obvious, employees who were thinking of leaving won't be terribly enthusiastic about being forced to sign one of these agreements.

(2) "It just doesn't seem fair" - in other words, how is it fair for my employer to tell me "sign or you're fired"? This implicates the legal doctrine that arises in the context of basic contract law called "lack of consideration," which states that in order to obligate one side to an agreement, the other side must give something in exchange. And, here, the only thing the Company is providing these employees is the "privilege" of keeping their jobs.

Naturally, the former category doesn't really pose a serious legal question. The latter of these two categories, however, does. 

Is Continued Employment Sufficient Consideration to Uphold a Non-Compete?

The short answer to this question is, it depends on what jurisdiction you're in. 

For example, in Durrell v. Tech Electronics, Inc., 2016 WL 6696070 (E.D. Mo. Nov. 15, 2016), the Federal Court for the Eastern District of Missouri held that 

“[A]n offer of at-will employment, or the continuation of at-will employment, is simply not a source of consideration under Missouri contract law.”

In reaching this conclusion, the Durrell court relied on a Missouri state court's holding in Baker v. Bristol Care, Inc., 450 S.W.3d 770, 775 (Mo. 2014) that with at-will employment,

“[T]he employer makes no legally enforceable promise to do or refrain from doing anything that it is not already entitled to do.  The employer can still terminate the employee immediately for any reason.”  

Likewise, in Fifield v. Premier Dealership Servs., 933 N.E.2d 938 (Ill. App. Ct. 2013), an Illinois appeals court held that the promise of “at-will” employment alone does not constitute sufficient consideration to validate a non-compete agreement, unless the employee was guaranteed two or more years of continued employment. 

Some other states, such as  North Carolina, Montana, South Carolina, Oregon, Texas, Washington, and Wyoming have also specifically stated that continued employment alone does not constitute sufficient consideration for a non-compete agreement.

What the New York Courts Have Held

New York courts - unlike those above - have held that continued employment alone may be deemed sufficient consideration to support a non-compete, stating:

"[A]s an “existing employment”, the relationship between the plaintiff and defendant formed the context in which the employer could legally seek a restrictive covenant, even though a claim of bad faith on the defendant's part has been made and the plaintiff's fear of the effect termination of his employment would have on his family meant that he had little choice but to accept."

Zellner v. Stephen D. Conrad, M.D., P.C., 183 A.D.2d 250, 254–55, 589 N.Y.S.2d 903, 906 (1992). See also, Gazzola-Kraenzlin v. Westchester Med. Grp., P.C., 10 A.D.3d 700, 702, 782 N.Y.S.2d 115, 117 (2004) ("The plaintiff's employment ceased on December 31, 2002, the termination date stated in the employment contract. Under these circumstances, the plaintiff's continued employment by the defendant until December 31, 2002, constituted good and sufficient consideration for the restrictive covenants, notwithstanding the at-will nature of the employment relationship").

 

 



Category: Non-Compete & Employment Agreements


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