December 12, 2018

Jennifer Gokenbach: Colorado Supreme Court Says Continued At-Will Employment Is Sufficient Consideration for Noncompetition Agreement

On May 31, 2011, in a decision critical to non-compete law in Colorado, the Colorado Supreme Court issued its holding in Lucht’s Concrete Pumping Inc. v. Horner (PDF).  I previously blogged about the fluctuating state of Colorado’s non-compete law given the decisions below in the Lucht’s case — Colorado Non-Compete Law in Flux (October 7, 2010).  For many who have been watching and waiting, The Decision (that’s my sport’s reference for the day…go Heat) has arrived, and it’s favorable for employers.

Decisions Below

  • The trial court granted summary judgment in favor of the employee (Horner) concluding that his noncompetition agreement was unenforceable due to lack of consideration, as he was not offered any additional monetary payment, raise, benefits, etc. in exchange for the non-compete covenant that his employer (Lucht’s) wanted him to sign after he was hired.
  • The employer (Lucht’s) appealed.
  • The court of appeals agreed with the trial court and concluded that continued employment of an at-will employee cannot, by itself, constitute consideration for a non-competition covenant if the employee had already begun working.
  • The employer (Lucht’s) appealed again.

Colorado Supreme Court Reverses

In an en banc decision, the Colorado Supreme Court reversed the court of appeals:

“We hold that an employer that forbears from terminating an existing at-will employee forbears from exercising a legal right, and that therefore such forbearance constitutes adequate consideration for a noncompetition agreement.  We have recognized that continuation of at-will employment is adequate consideration in the context of an employee’s receipt of a benefit, Continental Air Lines [v. Keenan], 731 P.2d [708,] 711 [(Colo. 1987)], and now apply that reasoning to the context of consideration for a noncompetition agreement.”

The Court reasoned that because employment in Colorado is at-will, meaning that an employer may terminate an at-will employee at any time during the employment relationship as a matter of right, the forbearance from terminating an employee presented with a non-compete agreement after hire is the forbearance of such a legal right.  The Court further reiterated that there appears to be no question that sufficient consideration for a non-compete agreement exists when entered into at the commencement of at-will employment.

So, there you have it.  The Colorado Supreme Court says continued at-will employment is sufficient consideration for non-compete covenants.  Employers may rejoice – there is no need to go back and offer more money or benefits to employees who have signed noncompetition agreements after hire.

Jennifer Gokenbach is a partner at Ogletree Deakins and focuses her practice on management side trial work and counseling on a wide range of employment law issues. She blogs at Colorado Employer’s Law Blog, where this post originally appeared on May 31, 2011.
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