“Employee Non-competes and Consideration: A Proposed Good Faith Standard for the 'Afterthought' Agreement”
Ethics and Business Law
Date of this version
Employment law, contracts, non-compete agreements
This article proposes a good faith standard for the so-called “afterthought” agreement—a non-compete agreement given to and signed after an employee has commenced work. This issue has perplexed commentators and divided courts. The majority hold that continued employment is sufficient consideration for an existing at-will employee’s promise not to compete. A minority of courts require “independent” or “separate” consideration—such as a promotion, pay raise, or some other obligation incurred by the employer.
The requirement of good faith would provide an important deterrent to employers who might otherwise seek to unfairly use their superior bargaining position to secure a mid-stream non-compete agreement, and additionally provide a significant incentive for employers to be open and transparent during all stages of the negotiation process for an afterthought agreement. At the same time, a good faith standard would permit employers the flexibility they need to protect their business assets by securing non-compete covenants as employment relationships develop and change over time.
We propose a two-prong test for good faith. The substantive component would consider the business justification for an afterthought agreement, including changes in the employment relationship justifying a non-compete agreement. The process component of the good faith standard would consider the means by which the employer secured the employee’s assent to the non-compete agreement, including whether the employee was apprised of the non-compete provision during pre-hire negotiations and any coercive activity used to secure the employee’s consent.
University of Kansas Law Review