Federal District Court In Missouri Raises Doubts Concerning Whether At-Will Employment Is Consideration For A Non-Compete Agreement
The United States District Court for the Eastern District of Missouri, in Durrell v. Tech Electronics, Inc., 4:16-CV-01367 (E.D. Mo. Nov. 15, 2016), held that an at-will employee’s non-compete agreement may not be enforceable where the only form of consideration is the employee’s at-will employment status since an at-will employment relationship cannot constitute consideration.
In Durrell, a former employee filed a complaint asserting various employment claims including FMLA retaliation and discrimination under the ADA and MHRA, along with a claim for declaratory relief alleging that the non-compete clause in his employment agreement was unenforceable because an at-will employment relationship cannot form the basis for consideration to enforce a non-compete agreement.
With respect to the former employee’s claim for declaratory relief, the employer moved to dismiss, arguing that Missouri courts have consistently recognized, for decades, that continued at-will employment provides sufficient consideration to render employee non-compete agreements enforceable under Missouri law. See, e.g., JumboSack Corp. v. Buyck, 407 S.W.3d 51, 55-56 (Mo. App. 2013) (“Missouri courts have recognized that continued at-will employment constitutes consideration for a non-compete agreement where the employer allows the employee by virtue of the employment, to have continued access to its protectable assets and relationships.”) (internal quotations omitted).
The Eastern District of Missouri rejected the employer’s argument. The court relied upon a series of Missouri cases regarding arbitration agreements in the employment context which have held that at-will employment is not a source of consideration for an arbitration agreement. The Eastern District, however, did not address the fact that those cases explicitly distinguished non-compete agreements and arbitration agreements. See Morrow v. Hallmark Cards, Inc., 273 S.W.3d 15, 28 (Mo. App. 2008) (“[I]t is a mistake to think that the judicial approach to enforcement of a covenant not to compete is comparable to enforcement of an employer-dictated condition of continued employment requiring the employee to arbitrate claims against the employer. We enforce covenants not to compete for equitable and policy reasons[.]”).
In the end, the court held that the employee’s claim to declare the non-compete clause unenforceable survives the motion to dismiss, and adequately states a claim upon which relief can be granted. Given the procedural context, perhaps the ramifications of this opinion will be minimal. Nevertheless, since the opinion extends the contract formation analysis from arbitration agreements to non-compete agreements and numerous recent Missouri court opinions have refused to enforce arbitration agreements, employers should take note. At a minimum, employers should review their non-compete agreements and consider including alternative forms of consideration supporting a non-compete agreement, such as bonuses, vacation time, or any other benefit to which the employee would not otherwise be entitled but for his or her execution of the non-compete agreement.