Colorado Supreme Court Ruling Resuscitates Non-Compete-Type Agreements with Current Employees
By Ted Olsen
Colorado employers that wish to implement non-competition, non-disclosure and non-solicitation agreements with their incumbent employees have, until recently, faced an obstacle in the form of a 2009 Court of Appeals' decision stating that an at-will worker's continuation of employment was not sufficient consideration for such an agreement. In other words, the at-will worker's employer was required to provide that worker a lump-sum payment, a new benefit, or some other form of consideration for its agreement. This requirement sometimes created tense situations where incumbent workers, presented with these new agreements, refused to sign them and rejected the offered consideration.
The Colorado Supreme Court, however, unanimously reversed the 2009 decision recently, ruling that the continued employment of an at-will employee after the employee signs a non-compete or similar agreement is sufficient consideration for the agreement. Lucht's Concrete Pumping, Inc. v. Horner, Case 09SC627 (May 31, 2011).
The Supreme Court in Lucht's Concrete Pumping accepted the argument we have long been advancing, that - insofar as a document giving employees rights (such as an employee handbook) may be a contract supported by consideration if the employee continues his or her employment after receiving it - the same treatment should be given to documents given to employees that restrict employee conduct (or that give employers rights).
In the decision, the Supreme Court, without explanation, stated that the continuation of an at-will employee's employment will not be sufficient consideration if the employer intends to fire the employee at the time the agreement is signed. The Court also intimated that consideration might be lacking if an employer fired the at-will employee a short time after the employee signed the agreement.
Caution: the Lucht's Concrete Pumping decision is clearly confined to at-will employees. If an employee is working under a fixed-term contract or a contract requiring just cause for termination, for example, the employee is not at-will. The continuation of that employee's employment is not adequate consideration, as he or she is not receiving anything beyond that to which the employee is already entitled.
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©2011 Sherman & Howard L.L.C. July 11, 2011