Continued Employment is Now Sufficient Consideration in Colorado for a Later-Signed Noncompetition Agreement

Author: S. Kato Crews
Published: June 14, 2011 -

In one of the most significant employment-law rulings from the Colorado Supreme Court this year, the state high court held that an at-will employee’s continued employment is sufficient consideration to support a noncompetition agreement signed by an employee after his or her initial hire. The Court’s decision reverses a previous decision by the Colorado Court of Appeals which held to the contrary, and frees employers to make good faith efforts to get noncompetition agreements in place with existing at-will employees (where appropriate) without the need to offer those employees additional compensation or benefits in exchange for their signing a noncompetition agreement.

The case is Lucht’s Concrete Pumping, Inc. v. Horner, decided May 31, 2011. It involved Tracy Horner, an at-will employee hired by Lucht’s in 2001. Horner signed a noncompetition agreement with the company in 2003, two years after his date of hire. When he resigned from the company in 2004 and began to work for a competitor, Lucht’s sued him, in part, for breach of the noncompetition agreement.

Implicit in the at-will employment relationship is the employer’s right to terminate an employee at any time, and the employee’s corresponding right to quit at any time. As one court put it, “[a]s a practical matter every day is a new day for both employer and employee in an at-will relationship.”¹ Because an employer may terminate an at-will employee at any time, the Colorado Supreme Court concluded that an employer’s restraint from terminating an employee is the forbearance of a legal right. And, this forbearance constitutes adequate consideration to support a noncompetition agreement signed by an existing at-will employee.

Presenting an existing at-will employee with a noncompetition agreement is in essence an offer to renegotiate the terms and conditions of the employee’s employment. In exchange for signing the noncompetition agreement and accepting the new employment terms, the employee receives the ability to continue his or her employment because the employer refrains from exercising its lawful right to terminate the employee. But the Colorado Supreme Court warned against employers seizing this as an opportunity to have an existing at-will employee sign a noncompetition agreement only to terminate that employee shortly thereafter. An at-will employee’s continued employment is not sufficient consideration if the employer acts in bad faith by terminating the employee shortly after (s)he signs the noncompetition agreement.

Employers must remember that noncompetition agreements are void in Colorado unless one of four exceptions applies. C.R.S. § 8-2-113(2). One exception allows for noncompetition agreements with “executive and management personnel and officers and employees who constitute professional staff to executive and management personnel,” while another exception applies to contracts for the protection of trade secrets. While an at-will employee’s continued employment may now be sufficient consideration for a later-signed noncompetition agreement, any noncompetition agreement must still satisfy one of the four exceptions, and must always be reasonable as to geographic scope and duration.

¹Copeco, Inc. v. Caley, 632 N.E.2d 1299 (Ohio 1992).

S. Kato Crews is a Partner with Mastin Hoffman & Crews LLC. He is a litigator representing businesses and professionals in a range of legal disputes, with particular experience defending employers against a variety of employment-related claims, and representing construction professionals, developers, and owners in commercial and residential construction disputes. Mr. Crews can be reached at 303.217.4876, or by via email at crews@mastinlaw.com.