Is “continued employment” sufficient “consideration” to support the enforcement of a non-compete agreement? It is an issue present in many non-compete disputes. But it is also an issue that may be overlooked or (incorrectly) assumed to be a “non-issue.”
If you need a refresher course on what consideration is and why it matters, we’ve got you covered.
As to how consideration plays out in non-compete disputes, I ran across a recent Illinois Court of Appeals decision where a lower court that dismissed an employer’s non-compete claim because continued employment was found to be sufficient consideration.
Specifically, in Axion RMS v. Booth (2019 IL App), the Court agreed with the trial court’s reasoning, which was as follows:
… where restrictive covenants are supported by adequate consideration based exclusively on continued employment, the employee’s employment must continue for at least two years after execution of the restrictive covenant … Booth’s [the former employees] employment for less than a year after he entered into the employment agreement at issue was insufficient to constitute adequate consideration … due to the lack of adequate consideration, the noncompete clause between Axion and Booth was unenforceable.
Since my matter involved Michigan law, the Axion case was relegated to a footnote because it was not “binding authority.”
Rather than going through the legal underpinnings for this conclusion, just take my word that a court opinion from another state’s judge is not binding on a Michigan Judge. It would be like someone from the Northeast telling a Michigander that a carbonated beverage is correctly called a “soda, not a “pop,” which is still way less weird than the South calling any carbonated beverage a “Coke,” even if it isn’t (do they really call a “Pepsi” a “Coke?”). In any event, in Michigan, pop is pop and you can’t tell me otherwise because that’s just crazy. The same concept applies to out-of-state court opinions … or does it?
Is Continued Employment Good Consideration in Michigan? Wait, ask Iowa?
So turning to Michigan law, attorneys who do not regularly deal with non-compete issues almost always assume the issue of continued employment as a basis for enforcing a non-compete law is a settled issue. But as we’ve previously noted, Michigan’s Supreme Court has never ruled on this issue.
Instead, the case frequently cited as support for this point comes from a 1991 federal case decided in the Eastern District of Michigan, Robert Half Int’l, Inc v Van Steenis. In Robert Half, the federal judge decided that in Michigan, continued employment was sufficient consideration to support a non-compete restriction. So you may be thinking, “ok, it’s not a ‘Michigan State judge” making the decision, but at least it was a judge sitting in a courtroom in Michigan carefully researching and analyzing Michigan law before deciding what the law should be in Michigan, right?”
Wrong! the Judge in Robert Half reached this conclusion based on (drum roll) ….. a 1983 Iowa court opinion (I can only assume if the judge had relied on Ohio law, the decision would have been overturned and Michigan politicians would have called for impeachment hearings). Yet this conclusion is often regurgitated without further thought – by attorneys and even judges (see QIS, Inc. v. Industrial Quality Control, Inc. (2004)).
How Does Continued Employment Affect your Noncompete Issue?
Does this mean your non-compete agreement is null and void because you signed it after your employment begin? If you are an employer adding non-compete or other post-employment restrictions to existing employment relationships should employees be given a bonus or other “consideration” beyond “continued employment?” The safe answer is “maybe.” The better answer is to talk to an experienced non-compete attorney who regularly deals with non-compete issues. But as the above cases make clear, it is not necessarily a settled answer under current Michigan law.
Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.