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As the authoritative force in Employment Law, we are committed to ensuring that we live up to our word by keeping you in the loop, informed, and enlightened about various legal and non-legal issues related to labor law. Through our ongoing series, we have provided you with key information on how to enforce restrictive covenants and protect trade secrets. To ensure that we keep you in the loop, this blog is Part A of Part II of our abridged series titled “Fundamental Aspects of Restrictive Covenants.” In Part I, we familiarized ourselves with the basis of restrictive covenants and promised to hammer on “Ensuring Restrictive Covenants are Adequately Considered for All” in this Part A of Part II of the series.

Ensuring Adequate Consideration for Restrictive Covenants

Adequate consideration is mandatory for a restrictive covenant to be enforced in court. Whether a restriction was imposed by the employer at the start or during the employment relationship and relevant state law determine what comprises sufficient consideration. This means that an employer must check relevant state requirements for key information on adequate consideration for restrictive covenants.

The Case for Incoming Employees

A new job is generally deemed to constitute sufficient consideration by many states when the restriction is imposed by the employer at the beginning of employment. This means that employers are required to provide additional consideration for restrictive covenants signed within a week or a few days of the employee’s start date or at the very beginning of the employment relationship as part of an acceptance of a job offer. However, if “substantial continued employment” does not occur after the employee signs the agreement, some jurisdictions may find any restrictive covenants unsupported by consideration other than the offer of employment unenforceable. There is a given range of a few months to two years for what constitutes substantial continued employment.

As a best practice, it is advisable for employers to provide additional contemporaneous consideration with the execution of a restrictive covenant but beyond the offer of new employment. Moreover, while the employee’s acknowledgment of the receipt and sufficiency of the additional consideration should be expressly stated, additional consideration should be identified in the agreement containing the restrictive covenant.

Requirement for Advance Notice of Restrictive Covenant

As a condition for employment and for incoming employees, the employer should ensure that the letter of offer should include a statement that the employee must enter into a restrictive covenant. At this point, the employer places the employee on notice of the restrictions by specifically referring to restrictive covenants in an offer letter. In some states, advance notices that the employer will need the new employee, as a condition for employment, to enter into restrictive covenants may be mandatory. For example, in Minnesota, it is only after a new employee leaves their former job and, without prior notice, is obligated to sign a non-compete agreement on the first day of the new job that the general rule that new employment is sufficient consideration for a non-compete will yield to an exception.

Technically, this step is taken by some states to deter an employer from foisting a non-compete agreement upon an unsuspecting new employee who has already, as a means to accept new employment, made a considerable effort. An employer must ensure that prior to or, if not possible, at the very beginning of the employment relationship, an incoming employee is provided with an employment agreement that clearly contains the restrictive covenant, given that an offer letter was not provided. Additionally, the fact that a restrictive covenant was a bargained-for part of the employment negotiation process may be demonstrated by referring to an earlier offer letter within a restrictive covenant agreement.

In Part III of this series, we will move the discussion of the “Basics and Fundamental Aspects of Restrictive Covenants” by hammering on Part B of “Ensuring Restrictive Covenants are Adequately Considered – Part B.”

In the interim, reach out to us with questions or comments on our website at the Contact Us page!

Always rising above the bar,

Isaac T.,

Legal Writer & Author.