Brief Fact Summary. P brought suit against D seeking compensatory and injunctive relief for breach of a non-compete covenant.
Synopsis of Rule of Law. There is a valid consideration when a non-compete covenant is signed after employment has begun and the employee continues to work for the employer for an appreciable length of time.
Issue. Is there a valid consideration when a non-compete covenant is signed after employment has begun and the employee continues to work for the employer?
Held. Yes. The judgment of the Court of Appeals is reversed and the judgment of the Chancellor is affirmed.
• A covenant signed prior to, contemporaneously with or shortly after employment begins is part of the original agreement and is supported by an adequate consideration.
• Where there has been full or substantial performance by one party to a bilateral contract, originally invalid for want of mutuality of obligation, the other party cannot refuse performance after receiving the promised benefits. In this case, the court held the covenant binding against D because of the length of employment of D.
• Even when the covenant is not signed until after employment has begun, courts in some states have found continued employment to be sufficient consideration. Some of these courts reason that the mutual promises of the parties as to continued employment form a binding bilateral contract with the promise of employment constituting a sufficient consideration.
• A covenant is enforceable if the employer continues to employ the employee for an appreciable length of time after he signs the covenant, and the employee severs his relationship with his employer by voluntarily quitting. In this case, D left voluntarily. There was no evidence that P acted in bad faith or with unclean hands.
The blue pencil rule is used to strike an unreasonable restriction to the extent that a grammatically meaningful reasonable restriction remains after the words making the restriction unreasonable are stricken.View Full Point of Law
Discussion. Although there was no consideration when D, already an employee, signed the covenant, continued employment provided a necessary consideration to make the covenant enforceable.