John F. Reha successful in obtaining unanimous Colorado Supreme Court opinion finding that no independent consideration is necessary to support a non-compete entered by an employer and employee during an existing employment relationship. John was lead counsel for the appellant in the appeal to the Colorado Supreme Court in Lucht’s Concrete Pumping, Inc. v. Horner, No. 09SC627. In a unanimous en banc opinion issued on May 31, 2011, the Supreme Court agreed with John’s arguments in their totality, reversing both the trial court and the Colorado Court of Appeals on the issue of whether independent consideration is necessary to support a covenant not to compete entered into during an ongoing employment relationship.
An issue had existed for many years under Colorado law as to the enforceability of a non-compete entered into between an existing employer and employee, without some form of independent, identifiable consideration, such as a bonus, raise, promotion or inclusion in a stock plan. Most covenants not to compete are entered into at the point of hire. There has never been an issue as to whether consideration exists in that situation, since the act of hiring is consideration itself. For non-compete agreements entered into after an employee is hired, however, the law was unclear. Some states require independent consideration and others don’t. The law in Colorado was unclear.
On an appeal of a case John acted as lead counsel on, the trial court dismissed the client’s breach of contract claim premised on the non-compete for the reason that the employer (John’s client) did not afford the employee any independent consideration such as a raise or promotion when the non-compete agreement was presented to him. The Court of Appeals affirmed, finding that the statutory prohibition against non-competes in Colorado, C.R.S. 8-2-113(2), militated toward a determination that independent consideration was necessary. Such statute is itself silent on whether such consideration is needed.
The Supreme Court reversed in full, finding unanimously en banc that, among other things, an employer’s forbearance of its right to terminate an at-will employee is sufficient consideration to support a non-compete entered into between an existing employer and employee. This case was of very high importance in the Colorado legal community and the opinion generated many comments immediately upon its release.
The bottom line of the opinion is that an employer need not give an existing employee a bonus, a raise, a promotion or another independent item of consideration to support a non-compete, even if the non-compete is entered into after hire. The Court further made clear that consideration to support a mid-stream non-compete need not be recited in the agreement itself, but can be found in the parties’ conduct. While the opinion relates only to non-competes, it would seem clear that the rule that no independent consideration is required applies to non-solicitation agreements, non-disclosure, trade secrecy and other agreements entered into between existing employers and employees as well.
If you have any questions about the Lucht’s opinion, or would like to discuss issues related to covenants not to compete, John is available for consultation.
The Lucht’s opinion is linked here.
On March 5, 2011, it was announced that John F. Reha was selected for inclusion in 2011 Colorado Super Lawyers in the areas of Business/Corporate Law, Business Litigation and Intellectual Property Litigation. Only five percent of the lawyers in the state were selected.
John was published in the Online Supplement to the Denver University Law Review on March 17, 2011. The title of his Comment is “The ‘Bounty’ and Strengthened Whistleblower Protection Provisions of the Dodd-Frank Reform Act.” Click here to read the article.
John has also been asked to submit a follow-up comment to the DU Law Review online regarding the SEC rules and regulations that will implement the Dodd-Frank whistleblower program. These rules/regulations were due to be promulgated no later than April 21, 2011, per a deadline set by Congress when it enacted Dodd-Frank, however the final rules were not published by the SEC until May 25. John will comment on them soon.
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