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What consideration do you need to require existing employee to sign Employment Agreement with restrictive covenant
October 26, 2018
What consideration do you need to require existing employee to sign Employment Agreement with restrictive covenant
    I recommend that every one of your employees be required to sign our Employment Agreement. Enforcement may vary state to state, and we do try to customize the Employment Agreement to accommodate your state. Why an Employment Agreement is easy to explain, so you don't have disputes regarding the terms of employment and, more importantly, terms affecting the employee after employment has terminated. Competition from a former employee who is in possession of your confidential business records will happen only once before you are convinced that you should have had the Employment Agreement signed.
    But what about existing employees? Can you require them to sign an Employment Agreement without providing some consideration? Specifically, is "continued employment" sufficient consideration so that the Employment Agreement will be enforced?
    It's not surprising that states deal with the issue differently, so enforcement of the Employment Agreement will depend on what state you are in and a bunch of other factors, such as reasonableness of any restrictive covenant, and specifically, whether you provided sufficient consideration for the employee's agreement.
    I had one of our Employment Attorneys research the issue, and here is Jonathan Rogoff's report. If you have employment law issues I suggest you contact our Employment Law Department, Jennifer Kirschenbaum,Esq at or Jonathan Rogoff at
    The legal canvas is changing for restrictive covenants imposed on existing employees, with courts in several jurisdictions requiring something beyond continued employment as adequate consideration for a binding non-compete agreement.
    The consideration needed to satisfy this requirement can take various forms, such as a cash bonus, specialized training, a promotion, or a raise at the time the employee is asked to sign the non-compete agreement. 
    Here’s a list of states that require something extra—beyond continued at-will employment for a binding non-compete agreement — Hawaii, Kentucky, Minnesota, Missouri, Montana, New Hampshire, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
    In Missouri, for example, a federal district court held that at-will employment alone, or the continuation thereof, is insufficient consideration for a non-compete agreement in that state, as the employer makes no “legally enforceable promise to do or refrain from doing anything that it is not already entitled to do” Durrell v. Tech Elecs. Inc.
    For midstream non-compete agreements to be enforceable in Pennsylvania, courts have specified that employers must provide “new” and valuable consideration. Examples listed by one court included “a promotion, a change from part-time to full-time employment, or even a change to a compensation package of bonuses, insurance benefits, and severance benefits” Socko v. Mid-Atl. Sys. of CPA Inc.
    A New York court refused to enforce a non-compete clause that was incorporated into a stock option agreement because it lacked adequate consideration. The court found that the agreement’s promise of continued employment was illusory and thus no right was ever conferred upon the employee NBTY Inc. v. Vigliante
    In North Carolina, a one-time payment of $500 has been deemed sufficient consideration for an existing employee’s non-compete agreement. Courts may also consider the length of time the employee remained employed after signing the non-compete.
    At one extreme, an Illinois appeals court has held that an existing employee must receive at least two years of additional employment before a non-compete is enforceable. Fifield v. Premier Dealer Servs. Inc.
    At the other extreme, the Wisconsin Supreme Court has held that there is no minimum amount of additional employment required, but if an employer terminates an employee shortly after executing the non-compete the employee may be able to void the agreement based on fraudulent inducement.
    In Florida, Maryland, and Georgia, continued employment is adequate consideration to enforce a binding non-compete agreement. Courts may also consider the length of time the employee remained employed after signing the non-compete.
    In California - when it comes to restrictive covenants, California doesn’t just limit enforceability. The state prohibits non-compete agreements altogether, and, with recent law changes, it allows employees to sue an employer that tries to enforce a non-compete agreement against them. 
    In Massachusetts a new law went into effect on Oct.1, 2018 severely limiting the restrictions an employer can place on its employee. To be enforceable, the non-compete agreement must contain a “garden leave’ provision, whereby if the employer chooses to enforce the restrictions it has to pay the ex-employee 50% his highest base salary from the prior 2 years for up to one year.
    For midstream non-competes, employers and their counsel must pay close attention to the issue of what constitutes sufficient consideration in certain states, or they may find themselves unable to enforce an agreement that was supposed to provide protection against competitive threats posed by a departing employee. 
Jonathan Rogoff, Esq.
Kirschenbaum & Kirschenbaum PC

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
516 747 6700