In 1997, Employer hired Employee to work as a commercial print salesperson, and the parties entered into an employment agreement. Under the agreement, Employer could terminate Employee without cause. Employee’s compensation consisted of a base salary and commission from sales. The agreement also contained a clause prohibiting Employee from competing with Employer in the custom printing business for a period of three years after employment ended. The agreement had no geographical limitations.
Nearly five years later, in April 2002, Employer requested and Employee executed a “Noncompetition and Confidentiality Agreement” (noncompete agreement). The noncompete agreement required Employee to refrain from accepting employment with a competitor for a period of three years within 75 miles of Employer’s business in Tacoma, Washington. Employee remained an “at will” employee and received no additional benefits. Employer incurred no additional obligations from the noncompete agreement. The noncompete agreement also contained clauses for confidentiality, severability, and an award of attorneys’ fees and costs.
A few months later, in July 2002, Employer announced a new commission sales compensation schedule. The old schedule’s threshold had paid commission when an employee generated sales of at least $25,000 for the month, while the new schedule required sales to exceed $60,000. Employee determined the new schedule would reduce his income by about 25 percent and sought employment for a similar position elsewhere. On November 12, 2002, Employer discovered Employee’s intention to seek employment with a competitor and terminated him. Employer also sent a letter to the competitor interested in hiring Employee, stating its intent to enforce Employee’s noncompete agreement. The competitor did not hire Employee. Employee remains unemployed despite actively seeking a position similar to the one he held with Employer.
The Employee sued the Employer. The trial court ruled against the employee and the employee appealed to the state supreme court.
JUDGE IRELAND: … Issue 1. Is there consideration for the formation of a contract when an employee, already employed by the employer, executes a noncompete agreement but receives no new benefit and the employer incurs no further obligations?
Employee claims that the noncompete agreement fails for lack of consideration; in other words, a contract was not formed. Employer contends that the noncompete agreement is enforceable because future and continued employment and/or job training served as the Employer’s consideration in exchange for Employee’s execution of the noncompete agreement…. The general rule in Washington is that consideration exists if the employee enters into a noncompete agreement when he or she is first hired…. A noncompete agreement entered into after employment will be enforced if it is supported by independent consideration…. Independent, additional consideration is required for the valid formation of a modification or subsequent agreement. There is no consideration when “one party is to perform some additional obligation while the other party is simply to perform that which he promised in the original contract.” [Citations omitted]. Independent consideration may include increased wages, a promotion, a bonus, a fixed term of employment, or perhaps access to protected information…. Independent consideration involves new promises or obligations previously not required of the parties….
In the present case, Employer contends that continued employment served as consideration for the 2002 noncompete agreement … [but] Employee’s noncompete agreement made no promises as to future employment and wages. Further, during deposition, Robin Pollard, Employer’s president, conceded that “no extra benefits or consideration or promises [were] made to [Employee] if he signed the noncompete.”
Consideration is a bargained-for exchange of promises. A comparison of the status of the employer before and after the noncompete agreement confirms that the 2002 noncompete agreement was entered into without consideration. Employer did not incur additional duties or obligations from the noncompete agreement. Prior to execution of the 2002 noncompete agreement, Employee was an “at will” Employee. After Employee executed the noncompete agreement, he still remained an “at will” employee terminable at Employer’s pleasure. We hold that continued employment in this case did not serve as consideration by Employer in exchange for Employee’s promise not to compete.
We hold that the 2002 noncompete agreement lacked independent consideration and is not enforceable against the Employee.