Employers often ask their employees to sign non-compete agreements. When an employer tries to enforce the agreement, one central issue is whether there was sufficient consideration to support the signing of the agreement by the employee. “Consideration” refers to the benefit received by the employee in exchange for signing the non-compete agreement. If the employee did not receive sufficient consideration, then the non-compete agreement will be deemed invalid.
There are two main scenarios when a non-compete agreement will be signed: (1) when the employee is being hired; and (2) after the employee is already working for the employer. North Carolina law looks at these two scenarios in a completely different manner when it comes to the issue of consideration.
Signing a Pre-employment Non-compete Agreement
For a potential, new employee, the issue of consideration is much easier to analyze… offering the job to the potential, new employee is sufficient consideration to enforce the non-compete agreement. In other words, the employee cannot argue “I did not receive any extra money for signing the non-compete agreement.” All the employer has to prove in relation to the issue of consideration is that the non-compete agreement was signed as part of the initial job offer.
What “Consideration” Should Employers Provide to Current Employees Signing a Non-compete Agreement?
The real issue concerning sufficient consideration arises when a current employee is asked to sign a non-compete agreement. This often happens for key employees. A key employee may start out at the bottom of the ladder without a non-compete agreement but then advances through the company and becomes a valuable employee. At that time, the employer decides that a non-compete agreement is needed.
Under such a scenario, the non-compete agreement must be supported by more consideration than just keeping your job. The employee has to receive something extra. In other words, the current employee must receive some sort of additional consideration for signing the non-compete agreement. This can be a raise, a bonus, more vacation time, etc. It depends on the circumstances as to whether the extra consideration given to a current employee is sufficient to support the signing of the non-compete agreement.
What is Sufficient “Consideration” Under North Carolina Law?
Unfortunately for the current employee, North Carolina courts have strictly limited the amount of additional consideration required to support the signing of a non-compete agreement. In general, our courts have indicated that they will not inquire as to the adequacy of the consideration, assuming some consideration exists.
In fact, a recent case from the North Carolina Court of Appeals upheld the payment of $100.00 to support the signing of a non-compete agreement by a current employee. In this recent case, the North Carolina Court of Appeals essentially stated that it was unwilling to enter into a debate as to whether $100.00 was sufficient consideration given that both parties admitted that the $100.00 was in fact paid. This shows how easily a current employee can be bound to a non-compete agreement when it comes to the amount of consideration paid by the employer.
Of course, even if there is valid consideration, this does not mean a non-compete agreement is still enforceable. North Carolina law still requires the non-compete agreement be reasonable as to time, territory and scope. However, it is important not to overlook the issue of consideration when considering the validity of a non-compete agreement.
Do You Need Help Reviewing Your Non-compete Agreement?
It pays to have counsel in North Carolina, who has both successfully drafted non-compete agreements for employers but who has also successfully advised employees as to the non-enforceability of their non-compete agreements. If we can help your company in drafting a non-compete agreement or, as an employee, in reviewing your non-compete agreement, then please do not hesitate to contact our Wake County law firm or call (919) 615-2473.
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