One of the most difficult things for companies looking to have key employees, or any employees, sign a non-compete agreement is that most states have at-will employment. While at-will employment is highly beneficial in terms of labor market movement and the ability for employers to grow and shrink their workforce as necessary, at-will employment is not particularly conducive to most non-compete agreements.
A recent case out of Missouri highlights the difficulty of legal consideration for non-compete agreements in an at-will employment state. In many circumstances, a non-compete agreement is signed at the beginning of an employment relationship. Traditionally, the employer’s consideration, that is what the employer is promising, is continued employment of the employee. However, sharp-eyed readers will note that continued at-will employment can be rescinded by the employer any time for any reason.
This was the exact issue in the Missouri case of Durrell v. Tech Electronics, Inc. Robert Durell brought an action, asking the court, to among other things, have his non-compete agreement declared unenforceable in order for him to pursue other opportunities. Like many workers, Mr. Durell was asked to sign a non-compete agreement whose promise or consideration from his former employer was continued employment. The federal court hearing the case ruled “An offer of at-will employment, or the continuation of at-will employment is simply not a source of consideration under Missouri contract law.” The Interesting point about the cases cited by the judge in Durrell is that most of the cases dealt with the issue of at will employment arbitration agreements. The quote above is from the case of Baker v. Bristol Care, Inc., 450 S.W.3d 770, 775 (Mo. banc 2014)
Which addressed the issue directly.
In Maryland, there is a very similar case addressing the issue of at-will employment in the context of arbitration agreements. In Cheek v. United Healthcare of the Mid- Atl., Inc., 378 Md. 139, 835 A.2d 656 (2003), The Maryland Court of Appeals ruled that
“An illusory promise appears to be a promise, but it does not actually bind or obligate the promisor to anything. An illusory promise is composed of words in a promissory form that promise nothing. They do not purport to put any limitation on the freedom of the alleged promisor. If A makes an illusory promise, A’s words leave A’s future action subject to A’s own future whim, just as it would have been had A said nothing at all.”
If an employer makes a promise of continued employment as the sole consideration for a non-compete agreement, the employer has promised nothing. The employer can terminate the employee quite literally before the ink on the non-compete agreement is dry. If that is the case there is nothing that the employer has given that is of value. If there is nothing of value that is exchanged for the promise of a non-compete by an employee, then there can be no contract.
So the take away here is that employers should begin to look beyond simple employment or continued employment as the basis for a non-compete agreement. Interestingly, in Missouri, there is case law that suggests that access to a company’s trade secrets or key customers may be sufficient consideration for a non-compete agreement. In JumboSack Corp. v. Buyck, 407 S.W.3d 51, 55 (Mo. Ct. App. 2013), an intermediate appellate court stated that “Missouri courts have recognized that continued at-will employment constitutes consideration for a non-compete where the employer allows the employee by virtue of his employment, to have continued access to its protectable assets and relationships.”
Of course, the standard of continued access to protectable assets would be a question of how long access to has granted to be considered substantial and serve as consideration for a non-compete. One day? One month? One year? More time? lllinois answered that question by saying two or more years. In Fifield v. Premier Dealership Servs., 933 N.E. 938 (Ill. App. Ct. 2013), an intermediate appellate court held that the promise of continued at-will employment is not enough consideration to support a non-compete. But the Fifield Court went a step further and established a bright line rule, saying that in the absence of additional, independent consideration, two or more years of continued employment is required to constitute adequate consideration for a non-compete.
So far, Maryland courts have not fully addressed the issue of at-will employment as consideration for non-compete agreements, let alone whether there are any other rules like Missouri or Illinois. But the issue is certainly far from clear across the country and employers really should consult counsel and think about additional, independent consideration apart from continued at-will employment.