The Kentucky Supreme Court clarified what is sufficient consideration for a non-compete agreement on June 19, 2014. Continued employment in some cases may no longer be enough consideration. The case spells out the dangers of not handling non-compete agreements carefully and with good planning. It also highlights the fact specific analysis that is required in these cases.
In the case of Creech, Inc. v. Brown, 2014 WL 2778559 (Ky.), the employee had worked for the employer for 16 years and was presented with a non-compete. He was asked to sign it in order to keep the owner’s daughter “off his back”. No consideration was provided or spelled out, including a statement that if he failed to sign, he would lose his employment. He was not provided with any specialized training. The Court, in analyzing the facts, held that no consideration existed including no change in employment. Therefore, the agreement was not enforceable.
The lesson to employers is to present a non-compete agreement upon hire and as a term of employment. This should be clearly stated in the agreement itself. If specialized training or proprietary information is provided to the employee, this should also be specified. If a non-compete is given after employment starts, some sort of consideration should be provided such as a raise, bonus, promotion or training in addition to continued employment. The key is to be sure all of this is spelled out in the actual language of the agreement.
Non-compete or non-solicitation agreements are very useful in protecting company assets but they must be drafted carefully. Enforceability depends highly on the language and fact situation of each employee and employer.
Kelly Schoening is a Partner in the law firm of Dressman Benzinger LaVelle, with offices in Cincinnati, Ohio, Crestview Hills, Kentucky, and Louisville, Kentucky.
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