Coke Shows the Right Way to Enforce a Post-Employment Non-Compete
If you were ever looking for the best way to assure a former employee's compliance with a non-compete, Coke just followed the formula to a "T."
In a story that was reported earlier today, Coca-Cola Amatil's former chief executive agreed to step down, and in exchange for honoring his non-compete, will be paid a salary of $150,000 during that time period.
The reason this works - in many jurisdictions, like New York - is straightforward, and goes to basic rules of contract law:
Every contract, in order to be enforceable, requires consideration, which in regular English means that in order to get something, you need to give something in return.
The problem with many non-competes is that the employee isn't really getting anything in return for his agreement to a non-compete other than being allowed to continue his current job; and, post-termination, he's essentially getting nothing in exchange for being required to sit on the sidelines. And, in those cases, there are many courts that will be very reluctant to enforce those non-competes.
HOWEVER, those rules don't apply nearly as readily if the company agrees to continue paying the former employee post-termination so long as the employee continues to honor the non-compete.
The moral of this story is clear: if it is really important to you, as the employer, to assure that a soon-to-be former employee honors his non-compete, this is definitely the way to go.