No New Consideration, No Enforceable Noncompete

by Lee Gesmer on March 29, 2006

Noncompete Agreements. Clients frequently present the following issue: we have existing employees who have not signed noncompete agreements. We’d like to ask them to sign them. Any problem with that?

The knowledgeable lawyer then struggles with the following question: does the employee need to be given some consideration for the noncompete to be enforceable? Consideration is not an issue when an employee signs a noncompete at the beginning of employment, since the job itself provides the consideration. But when the employee already has the job, does the employer have to give the employee some new consideration? – a raise, a bonus, a promotion?

There is a line of Massachusetts cases suggesting that continued employment (for an at-will employee) is itself adequate consideration, but the rule is not as clear as most lawyers would like, and many lawyers are forced to equivocate on this issue. And, some states have clearly held that continued employment is not adequate consideration, adding to the uncertainty.

In a decision issued on February 2, 2006 in Metropolitan Removal Co. v. D.S.I. Removal Specialists, Inc. [click here for the decision] Superior Court Judge Peter Agnes, a well-respected judge in Massachusetts, held that a noncompete agreement was not enforceable where the employee did not receive new consideration. Citing no cases one way or the other, Judge Agnes noted that the employee “did not receive consideration in return for signing this agreement whether in the form of increased compensation, increased authority, or both. Neither his job title nor his job description changed after he signed the agreement.”

Massachusetts companies seeking to impose noncompete restrictions on existing employees should take note.

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