From the April 2007 issue of Investment Advisor • Subscribe!

What if the Horse Has Left the Barn?

It is ideal to have a new employee sign a restrictive covenant when he begins his employment. But what if you don't do so at that time? Is it too late? The short answer is no. However, you should not present the agreement to an existing employee without first ascertaining whether the state in which the employee is located is a "consideration" state. If you do (or you already have), you may unfortunately have an agreement that is unenforceable against the employee. In a "consideration" state, the employer must provide adequate consideration to the existing employee in order for the employee's non-solicitation covenant to be enforceable. In these states, the employee's "continued employment" is not adequate consideration. Depending upon the state, adequate consideration could be a raise, bonus, or promotion. I generally prefer a one-time execution bonus so that the employee cannot later attempt to assert an insufficient consideration defense to enforcement of the agreement, claiming that he was due the raise or promotion in the ordinary course of his employment. Even in "continued employment" states, I recommend that the firm consider providing the existing employee with some type of consideration.

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