You’re a Connecticut employer with a restrictive covenant program to protect your customer relationships and confidential business information. You require anyone you hire who to develop customer relationships or use your confidential business information to sign reasonable noncompete/non-solicitation agreements at the beginning of employment. You’re confident you’ve immunized yourself from a claim that the covenants are invalid due to a lack of consideration. Similarly situated Illinois employers thought the same way until their intermediate appellate court ruled there is no consideration for this covenant unless the at will employee remains with them for at least two years (the Illinois Supreme Court recently refused to review the decision). The question is do Connecticut employers have anything to fear here?
The answer is they shouldn’t, but they may. They shouldn’t because Illinois law is different from Connecticut law on consideration for non-competes. Both states purportedly require “adequate consideration” for these covenants to be enforceable, but Illinois takes the adequacy piece seriously where the consideration is simply at-will employment. The concern is that the employment relationship could end in a matter of months or even weeks, and the employee’s subsequent activities may be significantly restrained for the next two or three years. So, to further its concept of fairness, Illinois says that unless the employee stays for two years, the consideration (at will employment) is inadequate and tantamount to no consideration.
Connecticut courts mouth the words “adequate consideration” in noncompete cases, but there’s no special consideration rule for these cases. General contract law principles apply, and in Connecticut the relative value of the consideration does not matter. Consideration is sufficient even if it isn’t equal.
So, why do Connecticut employers possibly have something to fear from the Illinois case? It’s because when a Connecticut employer goes to state court to win a temporary injunction against the former employee, it’s asking the court to render a decision it has discretion to make. This means that even if the employer proves its case, the court can still refuse an injunction if it believes it would be unfair to enjoin the employee under the circumstances. And where the circumstances are an at will employment that lasted only three months and a non-compete that lasts for two or three years, a Connecticut court might consider this unbalanced and unfair.
The takeaway? To feel more confident in the enforceability of your covenant, don’t end an at will employment too quickly, or make sure you give the employee something besides at will employment at the beginning of the employment.
Richard C. Robinson practices in the area of business litigation including the litigation of construction and employment disputes.