Continued At-Will Employment Can Be Sufficient Consideration For Restrictive Covenant Agreements

     The Connecticut Appellate Court recently found that continued employment of at will employees, without more, can constitute sufficient consideration for post-hire restrictive covenant agreements. Schimenti Construction Company v. Joseph Schimenti. The case law in this area has historically been murky, with some lower courts holding continued at will employment, without some added compensation or improvement in terms and conditions of employment, is inadequate consideration as a matter of law to support a post-hire restrictive covenant agreement. Other courts have found it is sufficient under some circumstances. Restrictive covenant agreements normally include non-compete, non-solicitation, and/or non-disclosure provisions.

      In the instant case, the employee, a project manager for a construction management firm, was first employed as an at-will employee. Several years later the employee sought greater responsibilities and the owner agreed to promote him to managing director. In return the employee was asked to sign a restrictive covenant agreement containing non-compete, non-solicitation and non-disclosure provisions. The new job was conditioned on the employee signing the agreement. The employee received no increase in base pay or benefits at the time of signing, but would be eligible in the future for greater compensation if he met certain performance targets.

      Four years later, the employee quit his job and took a job with a competitor in violation of the restrictive covenant agreement. The company sued and the employee claimed the agreement was invalid for lack of consideration. The company argued that continued employment as an at-will employee, the promotion offering greater responsibility, and the potential for higher compensation was sufficient consideration.

      The trial court sided with the employee and found that the only actual consideration offered was continued at will employment, which in its interpretation of Thoma v Oxford Performance Materials, Inc., 153 Conn. App. 50 (2014), was insufficient as a matter of law. In Thoma, the Appellate Court stated that a party giving nothing more than the status quo of continuing employment, and offering no additional benefit, had failed to provide sufficient consideration for a restrictive covenant agreement. The trial court read Thoma to mean that continuing at will employment, without more, can never be adequate consideration as a matter of law.

      The Appellate Court disagreed with the Schimenti trial judge and clarified that continuing at will employment can be sufficient consideration, but did not go so far as to say that it will always be sufficient consideration.

      In describing the contours of when continuing at will employment may be sufficient, the Appellate Court first cites Roessler v. Burwell, 119 Conn. 289 (1934). In that case, the employee signed a non-solicitation agreement several years after first working for the company with the only consideration taking the form of continued at-will employment. Five years later the employee quit and engaged in conduct prohibited by the agreement. The employer sued and the trial court and Supreme Court ruled in the employer’s favor. In citing Roessler, the Appellate Court found that continued employment can be sufficient consideration in some circumstances, including when the facts show that signing the agreement was a condition of continued employment, and that the employee continued to work for a period of time after executing the agreement, and then quit voluntarily.

      In sum, while continued employment may not always be sufficient consideration for a restrictive covenant agreement, it is now clear it is not insufficient per se as a matter of law. When an employee is required to sign a restrictive covenant agreement to remain employed, and continues to work for a period of time, and then quits, the agreement will likely be enforced as the employee received the benefit of his bargain by continuing to work for the employer. Unanswered by the decision is how long an employer must wait to involuntarily discharge an employee after the agreement is signed for the court to conclude the employee received adequate consideration in return for signing the restrictive covenant agreement.

      While the courts have now provided some clarification on sufficient consideration for post hire restrictive covenant agreements, President Biden has recently signed an Executive Order encouraging the Federal Trade Commission to ban or limit non-compete agreements nationwide. It is unclear what steps the FTC will take, and any action will likely draw litigation. In the meantime, employers in Connecticut may continue to use restrictive covenants, but must insure adequate consideration is provided in return for the restrictions imposed on employees.