Consideration Issues can be Key for Covenants Not to Compete

In many cases the consideration element of a noncompetition agreement is mere formality and often taken for granted. But in many states this element, which is an essential part of any contract, can be a critical questions when it comes to enforcement.

Most states, including Delaware, follow the general rule that the initial offer of employment is sufficient consideration to support a non-compete agreement. More problematic is when the employer asks an existing employee to enter into a noncompete. In these cases, choice of law becomes critical, since a significant number of states require additional consideration above and beyond the continued employment relationship.

In Delaware, the Court of Chancery has consistently ruled that continued employment is alone sufficient consideration to support a noncompetition agreement. Still, it is advisable to consider offering additional consideration as an incentive both for morale purposes and to weaken the employee’s ability to raise hardship issues when the time for enforcement arrives.

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