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When Employees Can (& Can't) Be Forced to Sign a Non-Compete


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11/3/2017
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Consider the following scenario:
 
After having been burned by a disloyal independent contractor or employee, Employer decides to review all of their employment contracts, and quickly realizes that the agreements currently in place, which are boilerplate forms, offer little protection of Employer's client base and employees against poaching.
 
Employer wisely decides to retain a boutique firm that specializes in the area of non-competes to revise their agreements for all new employees and independent contractors that are brought on board.
 
That's great; but what about the employees that are already working for the company, and don't have such agreements?
 

Can an Employer Compel Existing Employees to Sign a Non-Compete Agreement?

The answer to this question is certainly a pressing one.
 
And the answer, although it may sound a bit glib, is this:
 
It depends on which jurisdiction you're in.

The Competing Policy Arguments Both For - And Against - Allowing Employers to Push Existing Employees to Sign a Non-Compete

Fortunately, one of New York's appellate courts in Zellner v. Steven D. Conrad, M.D., P.C., laid out the two sides to this argument rather nicely.
 
In that case, the plaintiff, a doctor who was employed in an at-will capacity with the defendant medical practice, sought a court order declaring unenforceable his restrictive covenant that barred him from practicing medicine for a limited time and within a limited area post-employment. Zellner had been given the non-compete to sign after he had already been working for defendant for several months. He did not receive any additional money in exchange for signing the non-compete; he was just allowed to keep his existing job.
 
In affirming the trial court's order that upheld the agreement, and granted the defendant injunctive relief barring the plaintiff from practicing medicine in violation of the non-compete provision, the court summarized the two sides of the argument as follows: 
 
"We now turn to the heart of the plaintiff's argument, the absence of additional consideration for the restrictive covenant, which he claims was necessary because he already had been hired as an independent contractor some months before. As the plaintiff contends, courts in other jurisdictions have held that some additional consideration, not the mere continuation of employment (the consideration asserted by the defendant in this case) must be given to support a restrictive covenant once employment has begun (see, Freeman v. Duluth Clinic, 334 N.W.2d 626 [Minn]; George W. Kistler, Inc. v. O'Brien, 464 Pa 475, 347 A2d 311; Mail–Well Envelope Co. v. Saley, 262 Or. 143, 497 P.2d 364; Kadis v. Britt, 224 N.C. 154, 29 S.E.2d 543; Schneller v. Hayes, 176 Wash. 115, 28 P.2d 273; Morgan Lumber Sales Co. v. Toth, 41 Ohio Misc. 17, 321 N.E.2d 907). The reasoning underlying this view may be stated simply: since the employer's obligation under the covenant amounted to do no more than to employ the employee executing the covenant, something the employer already had agreed to do at the time of the initial employment, no consideration was given for the later agreement (see, Perthou v. Stewart, 243 F.Supp. 655, 658, citing McCombs v. McClelland, 223 Or. 475, 476, 483, 354 P.2d 311).
"On the other hand, there are a number of courts which have recognized continued employment as consideration sufficient to support a covenant not to compete where discharge was the alternative or where the employee remained with the employer for a substantial time after the covenant was signed (Affiliated Paper Cos. v. Hughes, 667 F.Supp. 1436 [ND Ala]; Mattison v. Johnston, 152 Ariz 109, 730 P2d 286; Research & Trading Corp. v. Powell, 468 A.2d 1301 [Del Ch]; Corroon & Black of Illinois, Inc. v. Magner, 145 Ill.App.3d 151, 98 Ill.Dec. 663, 494 N.E.2d 785; Hogan v. Bergen Brunswig Corp., 153 N.J.Super. 37, 378 A.2d 1164; Thomas v. Coastal Industrial Services, Inc., 214 Ga. 832, 108 S.E.2d 328; Roessler v. Burwell, 119 Conn. 289, 176 A. 126).
 
"We believe the latter position to be the better view. Because in at-will employment the employer has the right to discharge the employee (or, as here, an independent contractor providing services under a similar arrangement), without cause, and without being subject to inquiry as to his or her motives (Sabetay v. Sterling Drug, supra ), forbearance of that right is a legal detriment which can stand as consideration for a restrictive covenant ...
 
"Accepting the plaintiff's position would mean that the employer would have to fire the at-will employee and then immediately offer to rehire the employee on the condition that he or she sign the covenant in order to protect the covenant from a later attack that it lacked consideration (see, McRand, Inc. v. Van Beelen, 138 Ill.App.3d 1045, 93 Ill.Dec. 471, 486 N.E.2d 1306).
 
"We will not encourage unnecessary legal dramatics."
Zellner v. Stephen D. Conrad, M.D., P.C., 183 A.D.2d 250, 255–56, 589 N.Y.S.2d 903, 907 (1992).
 

The Takeaway

The answer as to whether an employer can compel an existing employee to sign a restrictive covenant - without offering anything in exchange for it other than continued employment - depends almost entirely on the jurisdiction that you're in. In New York (where I practice), the answer is yes. Of course, this only means that the agreement passes the first hurdle, and isn't automatically invalidated out of the gate for lack of consideration. That does not mean the agreement cannot be invalidated on other grounds, such as overbreadth in geographic scope or duration.



Category: Non-Compete & Employment Agreements

Jonathan Cooper
Non-Compete, Trade Secret and School Negligence Lawyer

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