When Crafting a Non-Compete Agreement, Beware of Illusory Promises

Recent court cases might be signaling a new trend for how non-compete agreements are interpreted – one that looks at the sufficiency of the contract’s consideration, rather than its existence. Historically, the analysis of whether consideration exists is very simple: two parties exchange promises—what you see is what you get—and there is no doubt as to the existence of consideration. Yet an evolving dynamic with non-competes between employers and employees is that courts are now looking at the adequacy of promises within the contract to determine if employers’ offers in exchange for a signed agreement might be illusory or otherwise insufficient. For example, in some states like Minnesota, employers cannot offer the promise of continued employment in exchange for using a non-compete clause, while in other states continued employment can support a contract, but sometimes only if the employment continues for a specific period of time. “Employers that want to improve their odds of a non-compete standing up to scrutiny should take care to offer something of value in exchange – a signing bonus, extra vacation time that wouldn’t be accrued otherwise, or some other benefit,” says Katie Connolly, a labor and employment attorney with Nilan Johnson Lewis. “And even then, a court could conceivably determine that the value of the agreement is insufficient. This subjective approach really puts employers in some states in a tough position because as of right now, simply addressing whether consideration exists is not good enough—you have to also look at whether the consideration is adequate.” Contact Katie Connolly at (612) 305-7546 or kconnelly@nilanjohnson.com, or Jeff Trauring at (651) 789-1268 or jeff@kohnstamm.com 

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