In contract law, every agreement between parties requires “consideration,” or something of value, in order to be valid. In a recent landmark ruling, the Kentucky Supreme Court has held that employment alone is no longer sufficient consideration to justify enforcement of a non-compete agreement. This ruling could not only provide employees with more freedom of movement from employer to employer, but also potentially provide employees with more bargaining power at the outset of employment.
Non-compete agreements are provisions within contracts that state an employee will not work for a competitor for a certain period of time after leaving employment with the current employer. In the case of Creech, Inc. v. Brown, it involved a non-compete agreement lasting three years. Donald Brown was hired by Creech in 1990 to provide hay and straw to horse farms in Kentucky and other states. In 2016, Creech requested that Brown sign a document entitled “Conflict of Interest,” which would prevent Brown from working for another company that directly or indirectly competed with Creech for three years if Brown left without Creech’s consent. Although Brown signed the Conflict of Interest, no one from Creech signed on the other end. Shortly after, Brown was transferred to a new position with the same salary but decreased responsibilities. In 2008, he resigned from Creech and took a position with Standlee Hay Company, Inc., a company that also provided hay and straw for farms. Creech did not oppose the move and in fact signed a partial waiver of Brown’s non-compete clause. However, after hearing rumors that Brown had contacted Creech employees, suppliers, and customers, Creech filed a lawsuit against Brown, claiming breach of contract and seeking injunctive relief. Brown, in turn, argued that he had received no consideration for the Conflict of Interest provision he signed.
The state trial court ruled that Brown’s continued employment alone was sufficient consideration and sided with Creech against Brown. Brown appealed to the Court of Appeals, and the trial court’s decision was reversed. The Court of Appeals suggested that a six-part test be applied in determining whether the non-compete clause was enforceable. However, the Court also took the view that Brown’s continued employment with Creech was sufficient consideration for the Conflict of Interest. Both parties sought a discretionary review from the Kentucky Supreme Court.
The Supreme Court disagreed with the lower courts’ assessment, finding that non-compete agreements were not enforceable unless the employment relationship changed after both parties signed it. It referenced past cases where, after the two parties signed the no-compete clause, the employee received a more protected status, or specialized training and a wage increase. Therefore, Brown was no longer barred from working for a competitor.
At a time when employers seem to carry vast amounts of bargaining power, it is encouraging that the state court has allowed employees to have a little more power in the process as well.
Miller & Falkner is an Indiana and Kentucky plaintiffs law firm serving residents of Kentucky and Indiana. Located in Louisville, Kentucky, the firm provides representation in the areas of personal injury and employment law. If you need a Kentucky or Indiana employment law attorney, contact us today for a free consultation.