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Having Employees Sign Non-Compete Agreements After They Have Already Started Working Could Be A Big Problem For Some Employers

Written by Brandon Willenberg

A non-compete agreement is a vital tool that companies use to protect their confidential and trade secret information and their customer and employee relationships. Employers, of course, want to avoid the trouble of running to court to enforce their non-compete agreements, but if they do, they better make sure their non-competes will withstand a judge’s scrutiny. Otherwise, they’ll end learning the hard way, like WorkflowOne did this week courtesy of the federal district court in Hawaii.

Employers should sit up and take notice of the decision in The Standard Register Co. v. Keala – WorkflowOne’s current Hawaii-based lawsuit against several of its former employees and their new employer where it alleges that their former employees breached their non-competes by soliciting WorkflowOne’s customers.

Two of the former employees signed the agreement well into their employment. The court keyed in on the timing of that execution in rejecting WorkflowOne’s application to temporarily restrain those employees from soliciting its customers. According to the Court, WorkflowOne did not provide adequate consideration beyond their continued employment. The Court cited several other courts, including from Minnesota, Texas, Montana, and Washington, that found that mere continued employment was not sufficient consideration to enforce a non-compete agreement entered into after employment has already started. Something more was needed, like additional compensation, benefits or a promotion.

This case serves as an important reminder to employers that courts in different jurisdictions enforce non-competes in different ways. Non-competes are enforceable in many jurisdictions where the consideration is continued employment. But they aren’t in many other jurisdictions, like Hawaii. If you are operating in a jurisdiction that requires additional consideration, you must take steps to ensure that each new employee executes a non-compete agreement right when they start their employment. And if you were unable to do so, you will likely need to offer those employees something more to obtain an enforceable agreement later on. If you are unsure what a court in your jurisdiction has to say on this issue, we suggest you huddle up with your trusted employment counsel and get the guidance you need so that you don’t lose out on the benefit of your bargain. The old adage applies: better to be safe than sorry.

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