The Washington Supreme Court ruled this week that a noncompete agreement signed after an employee starts work must be supported by consideration other than continued employment.
Five years into his employment, the employee was asked to sign a Noncompetition and Confidentiality Agreement, which required that for three years after his employment ends, he would not work for a competitor within 75 miles of the employer's place of business. A few months later the employer announced a new commission sales compensation schedule, which the employee believed would reduce his annual income by 25%, and he sought employment in a similar position elsewhere. Thereafter, the employer terminated his employment and notified his prospective employer that it intended to enforce the noncompete agreement. The employee subsequently did not get the job and sued to invalidate the agreement.
The court held that while employment alone is sufficient consideration for a noncompete agreement signed at the outset of employment, additional and independent consideration is required for an agreement signed after the employee has been employed for modification of an existing agreement. Consideration may include additional pay, a bonus, a promotion, a fixed term of employment, or access to protected information. Training or instruction received after signing the noncompete may constitute additional consideration, but only if it is training or instruction that the employee would not have otherwise received. Labriola v. Pollard Group, Inc. (No. 74002-0, 11/10/04).
Noncompete agreements are enforceable in Washington if they are reasonable in duration, geographic area, and scope of activity. This case clarifies the consideration required to support a noncompete agreement entered into after commencing employment.