As we reported in an earlier News Alert, the Colorado Supreme Court has now held that continued at-will employment is sufficient consideration for a noncompetition agreement. In Lucht’s Concrete Pumping, Inc. v. Horner, No. 09SC627 (Colo. May 31, 2011), the Court held that an employer has a legal right to discharge an at-will employee and that forbearance from doing so provides adequate consideration for the agreement not to compete. The Court noted that a contrary rule would create a “perverse incentive” for employers to terminate at-will employees “and then rehire them the next day with a covenant not to compete.”
However, consideration may be lacking where the employer “enters into a noncompetition agreement with an employee with the intention of terminating the employee immediately afterwards” or where the employee is terminated at will “an unconscionably short length of time” after signing the covenant. Therefore, the safest course continues to be for employers to provide some additional consideration -- such as a pay raise or a one-time payment -- when requiring an existing employee to execute a noncompetition agreement.