Court Opinion

ID: 8172271
Source: CourtListenerOpinion
Date Created: 2022-09-09 21:22:23.765851+00
Date Added: 2024-06-11T16:39:47.910967
License: Public Domain

Johnson, J.,
¶ 25. dissenting. The majority emphasizes the close scrutiny that we must give to noncompetition agreements, but nonetheless enforces the present agreement based on illusory consideration and absent any assurance that the agreement is reasonable or is protecting any legitimate interest of the employer. Long after Staci Lasker began working for Summits 7, the company required her to sign an extremely broad noncompetition agreement forbidding her from directly or indirectly participating in any enterprise providing services related to those offered by Summits 7. The restriction on her employment was for one year following her termination for cause or voluntary resignation and covered all of Vermont and New Hampshire and part of New York. For signing this highly restrictive agreement, Lasker received nothing other than the right to continue the job that she already had. The majority holds that Summits 7’s forbearance from firing her was sufficient consideration for requiring Lasker to sign the covenant not to compete. By finding consideration under these circumstances, the majority has eviscerated the public policy concerns requiring *408consideration for — and close scrutiny of — covenants not to compete in employment relationships. Accordingly, I respectfully dissent.
¶ 26. A brief examination of the facts demonstrates that Lasker’s continued employment is illusory consideration for her signing the noncompetition agreement. The day before Summits 7 presented the agreement to Lasker, she was an at-will employee who could be fired at any time with or without cause, but who was free to leave her employ at any time and seek any other job. The day after she signed the agreement, she was still an at-will employee who could be fired at any time for any or no reason, but she had lost her right to seek any other job after leaving her employ. Indeed, extremely broad restrictions were imposed on her ability to obtain work for which she was qualified anywhere near her home. The agreement created both a benefit to Summits 7 and a detriment to Lasker, but neither a benefit to Lasker, the promisor, nor a detriment to Summits 7, the promisee — less than a peppercorn! See Bergeron v. Boyle, 2003 VT 89, ¶ 19, 176 Vt. 78, 838 A.2d 918 (either benefit to promisor or detriment to promisee is sufficient consideration).
¶ 27. Because Summits 7 relinquished nothing, and Lasker gained nothing, any consideration was illusory. See Gagliardi Bros., Inc. v. Caputo, 538 F. Supp. 525, 528 (E.D. Penn. 1982) (continued employment was not adequate consideration to support noncompetition agreement because restricted employee received no corresponding benefit or change in status); Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn. Ct. App. 1993) (no independent consideration exists unless employer provides real benefits beyond those already obtained by employee); Lake Land Employment Group of Akron, LLC v. Columber, 804 N.E.2d 27, 34 (Ohio 2004) (Resnick, J., dissenting) (continued employment is illusory consideration for signing noncom-petition agreement in at-will employment relationship because employee has gained nothing while employer retains same right it always had to discharge employee at any time for any reason); Poole v. Incentives Unlimited, Inc., 525 S.E.2d 898, 900 (S.C. Ct. App. 1999) (promise of continued employment to at-will employee is illusory because employer retains right to fire employee at any time).
¶ 28. The majority obscures the illusory nature of the consideration it finds here by suggesting that continued employment is sufficient consideration as long as the employer does not terminate the employment relationship in bad faith shortly after the agreement is reached. I find this reasoning illogical and unpersuasive. Whether there is *409adequate consideration should be judged based on the expectations of the parties at the time they enter into the agreement. Applying a retrospective analysis to determine whether there was consideration gets us away from traditional notions of consideration and instead transforms an illusory promise into enforceable consideration through performance. T. Staidl, The Enforceability of Noncompetition Agreements When Employment is At-Will: Reformulating the Analysis, 2 Employee Rts. & Emp. Pol’y J. 95, 106 (1998); see 15 G. Giesel, Corbin on Contracts § 80.23, at 173 (rev. ed. 2003) (backward-looking analysis applies form of doctrine of promissory estoppel rather than traditional notion of consideration). In any event, the analysis does not work because, in the end, the employee still gained nothing but continued employment, a legally unenforceable promise, while the employer gained the benefit of the legally enforceable agreement without suffering any detriment. T. Staidl, supra, at 106.
¶29. As the majority recognizes, historically courts have closely scrutinized post-employment covenants not to compete. 1H. Specter & M. Finkin, Individual Employment Law and Litigation § 8.01, at 443 (1989). Judicial scrutiny is necessary because such covenants are often the result of unequal bargaining power between the parties. Id. Employers may take advantage of that unequal bargaining power by imposing restrictions intended to ensure that their employees will not compete with them after they leave their employ. On the other side, employees interested in obtaining or keeping their jobs are likely to give scant attention to thé hardship that they may suffer later through the loss of their livelihood as the result of the restriction on their future employment. Id. § 8.08, at 485. In the interests of free commerce and freedom to choose one’s employment, courts have felt obligated to assure that restrictive covenants are aimed at protecting legitimate employer interests rather than restricting trade or competition.
¶ 30. Although these public policy concerns are ultimately addressed by determining whether the covenant in dispute is reasonably related to a legitimate employer interest and has reasonable geographic and temporal restrictions, the issue of whether adequate consideration exists for such covenants has become a flashpoint for those same concerns. In light of the increasing criticism of and restrictions upon at-will employment relationships, and the lack of any real bargaining between employer and employee when continued at-will employment is exchanged for restrictions on future employment, the “better view” is to require additional consideration beyond continued employment to support a restrictive covenant entered into during the employment *410relationship. Id. § 8.02, at 450; Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 541 (Wyo. 1993); see Currie, 500 N.W.2d at 164 (when employer requires employee to sign covenant not to compete after employee has commenced employment, without giving employee any consideration beyond continued employment for signing the agreement, employer takes undue advantage of unequal bargaining power between parties). In short, the critical public policy concerns underlying close scrutiny of noncompetition agreements require us to “examine the extent and character of the consideration received by the [employee] to a degree perhaps not true in ordinary contract cases.” Corbin on Contracts, supra, § 80.23, at 168 (“The common interest in an open market, with everyone free to buy and sell and exchange, causes the courts to scrutinize the consideration.”).
¶ 31. In this case, Staci Lasker began working for Summits 7 in 2000 as a ten-dollar-an-hour employee and gradually progressed in the company. More than a year after she commenced her employment with Summits 7, the company required her to sign a noncompetition agreement severely restricting her post-employment rights. The trial court suggested in its decision that Lasker’s general development as an employee — her learning how to handle increased responsibilities concerning the business — was adequate consideration for signing the noncompetition agreement. I concur with the majority’s rejection of this position. An employee’s development of skills during the employment period is neither adequate consideration nor a legitimate protectable interest of the employer sufficient to justify a restraint on trade. See id. §80.16, at 146 (“[I]f the harm caused by service to another [employer] consists merely in the fact that the new employer becomes a more efficient competitor just as the first employer did through having a competent and efficient employee, courts should not enforce the restraint.”).
¶ 32. The trial court also rejected Lasker’s argument that requiring her to sign the noncompetition agreement upon threat of dismissal amounted to coercion. The court reasoned that because employers have a legal right to offer continued employment in consideration for signing a noncompetition agreement, requiring Lasker to enter into such an agreement in exchange for continued employment and/or other benefits was not coercive in nature. By engaging in this circular reasoning, the court avoided examining both the specific facts of this case and the public policy concerns that are at the heart of a strict-construction approach to noncompetition agreements. Lasker had argued that she did not really have a choice as to whether to sign the *411agreement because her marriage was breaking up at the time and she had to stay financially solvent to support her two children. Her situation illustrates the unequal bargaining power that typically exists between employer and employee, particularly when the employer requires the employee to sign a noncompetition agreement upon threat of dismissal after the employee has become established in the job. Like Lasker, employees often have obligations and responsibilities that require them to stay with their job, even if it means signing onto an agreement that restricts their right to seek other jobs in the future. In such situations, employers should not be able to take advantage of their unequal bargaining power by requiring the employee to sign an agreement in exchange for mere continued employment. See T. Staidl, supra, at 118 (requiring employee to sign noncompetition agreement upon threat of discharge should be treated as irrefutably coercive in nature).
¶ 33. The existence of unequal bargaining power between employers and employees and the resulting restraint on trade require courts to carefully scrutinize covenants not to compete. See Vt. Elec. Supply Co. v. Andrus, 132 Vt. 195, 198, 315 A.2d 456, 458 (1974) (“Restrictions on doing business or on the exercise of an individual’s trade or talent are subject to scrutiny for reasonableness and justification.”). Yet, here, the trial court ceased its scrutiny of the noncompetition agreement upon ruling that it was supported by adequate consideration. After finding consideration for the agreement, the court never questioned whether the agreement was reasonable or based on any legitimate employer interest. But even assuming that adequate consideration existed, that fact should not have been dispositive of the case. As our case law demonstrates, the focus of cases involving noncompetition agreements should be on whether the employer had a legitimate protectable interest sufficient to justify the restraint on trade resulting from limiting the employee’s future employment. See id. (restrictive covenants will not be enforced if they are “contrary to public policy, unnecessary for protection of the employer, or unnecessarily restrictive of the rights of the employee”). Unfortunately, that is not what occurred here.
¶ 34. It may be true that at trial Lasker emphasized the absence of consideration for the noncompetition agreement rather than the lack of a legitimate protectable employer interest. Nevertheless, Lasker did generally argue in her motion for partial summary judgment that the agreement was unreasonable and unduly restrictive of her rights. I agree with the majority that the employer, not the employee, should *412bear the burden of demonstrating the existence of a legitimate protectable interest. NBZ, Inc. v. Pilarski, 520 N.W.2d 93, 97 (Wis. Ct. App. 1994) (“The employer has the burden of proving the reasonable necessity of the restrictive covenant.”); Restatement (Third) of Employment Law, Preliminary Draft No. 2, supra, § 6.05 (employer bears burden of proving that restrictive covenant is reasonably tailored to protect its legitimate interests). Under the circumstances of this case, the trial court should have examined the reasonableness of the parties’ agreement, including whether Summits 7 had a legitimate protectable interest.
¶ 35. In sum, I believe that requiring an employee to sign a post-employment covenant not to compete upon threat of dismissal, without conferring any benefit upon the employee other than continued at-will employment, which can be terminated at any time after the agreement is reached, is coercive in nature and unsupported by any real consideration. I would strike the agreement in this case for lack of consideration.