Last week, in the case of Lucht’s Concrete Pumping, Inc. v. Horner, the Colorado Supreme Court held that the continued employment of an at-will employee is adequate consideration for a noncompetition agreement. The Court explained that if this was not the case, employers would have an incentive to terminate at-will employees and condition their re-hire on the execution of a noncompetition agreement.
Nevertheless, the Court explained that “all noncompetition agreements must be assessed for reasonableness” and that such a “reasonableness” inquiry is fact-specific. Accordingly, “[t]o the extent that an employer enters into a noncompetition agreement with an employee with the intention of terminating the employee immediately afterwards, the agreement may fail for lack of consideration.”
Less clear is what would happen if an employer did not have such a malicious intention at the time it required an at-will employee to sign a noncompetition agreement, but nevertheless discharged the at-will employee shortly after obtaining the employee’s signature. The Colorado Supreme Court’s quotation from a Maryland decision holding that “[w]ere an employer to discharge an employee without cause in an unconscionably short length of time after extracting the employee’s signature to a restrictive covenant through a threat of discharge, there would be a failure of the consideration” suggests that this is an issue to be resolved in future Colorado court cases.