Employee Rights and Employment Policy Journal

Agreements from employees promising not to compete with their employers upon discharge, commonly referred to as ônoncom-petition agreements,ö have become increasingly frequent additions to the terms of employment, particularly in highly-technological and service-oriented industries.  For employers, these agreements afford protection against the improper use of confidential information, such as technological advances and customer lists, from exploitation by former employees.  However, employer abuse of noncompetition agreements may improperly restrain the personal freedom of former employees and the free flow of labor. As a result, employees and em-ployers alike have turned to the courts to determine the enforceabil-ity of such agreements. 

At-will employees, in particular, face the greatest risk of em-ployer abuse of such agreements.  In the at-will employment relation-ship, employers possess the ability to threaten at-will employees with immediate dismissal for not signing the agreement, thereby obtaining a noncompetition agreement in exchange for continued employment.  Thereafter, the employer can dismiss the employee at the employerÆs whim, thereby activating the covenant, with no corresponding benefit flowing to the employee.

To discourage such coercion by at-will employers, courts look for evidence of a bargained-for exchange when examining the en-forceability of noncompete agreements signed during at-will em-ployment.  Courts generally engage in a retrospective analysis of whether the agreement is ôancillaryö to a preexisting employment agreement or whether ôsufficientö consideration was given in ex-change for the agreement.  Because such analyses are retrospective, this approach provides little prospective guidance to employers and employees at the time noncompetition agreements are executed as to which covenants will satisfy the courtsÆ requirements.

In light of this inherent unpredictability, this article suggest a more reliable and logical substitute for the requirement that a non-compete agreement be ôancillaryö or supported by adequate addi-tional consideration to establish a bargained-for exchange.  Simply stated, noncompetition agreements signed before or during at-will employment should be unenforceable, unless exchanged for term employment or termination only for just cause.  Until employers forego their right to termination at-will, any promise to the employee in exchange for the covenant is illusory.  Thus, only those agreements signed in exchange for a term of employment, terminable by the em-ployer only for just cause, should pass this threshold test of validity as a bargained-for exchange.