Summits 7, Inc. v. Kelly
886 A.2d 365, 178 Vt. 396, 2005 VT 97 (2005)
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Rule of Law:
In an at-will employment relationship, the employer's forbearance from terminating the employee constitutes sufficient consideration to support a non-competition agreement entered into after the employment relationship has commenced.
Facts:
- In January 2000, Summits 7, Inc., a printing and copying company, hired Staci Lasker for its customer service department.
- Lasker's employment was at-will.
- Over the next year, Lasker received several promotions and raises, moving into the sales department.
- In January 2001, one year after her initial hire, Summits 7 presented Lasker with a non-competition agreement, which she signed.
- The agreement prohibited her from working for a competitor in Vermont, New Hampshire, or parts of New York for twelve months following a voluntary termination or termination for cause.
- Lasker signed a second, similar agreement in October 2002 after Summits 7 expanded.
- In April 2003, Lasker voluntarily terminated her employment with Summits 7.
- Two months later, in June 2003, Lasker began working for Offset House, Inc., a direct competitor of Summits 7 located in a nearby town.
Procedural Posture:
- Summits 7, Inc. filed a complaint against its former employee, Staci Lasker, in Vermont superior court (a court of first instance).
- Summits 7 sought an injunction to prevent Lasker from working for a competitor in violation of a non-competition agreement.
- After a trial, the superior court entered judgment in favor of Summits 7, enjoining Lasker from working for the competitor and awarding Summits 7 attorney's fees.
- Staci Lasker (appellant) appealed the superior court's decision to the Supreme Court of Vermont, with Summits 7, Inc. as the appellee.
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Issue:
Does an at-will employee's continued employment constitute sufficient consideration to support a non-competition agreement entered into after the employment relationship has commenced?
Opinions:
Majority - Allen, C.J.
Yes. Continued employment alone is sufficient consideration to support a covenant not to compete entered into during an at-will employment relationship. The court aligns with the majority of jurisdictions and the Restatement (Third) of Employment Law, holding that because an at-will employee can be fired at any time, the consideration is the same whether the covenant is signed at the inception of employment or during it. The consideration is the employer's forbearance from terminating the employee. Presenting a non-competition agreement is effectively a proposal to renegotiate the terms of the at-will relationship, and the employee's assent is given in exchange for the employer's decision not to end the employment. This approach also avoids forcing employers to fire and rehire employees simply to create a valid non-compete. This consideration is legitimate so long as the employer does not act in bad faith by terminating the employee shortly after the covenant is signed.
Dissenting - Johnson, J.
No. Continued employment is not sufficient consideration; it is illusory. The employee gains nothing from the agreement, while the employer gives up nothing. The employee remains an at-will employee who can be terminated at any time for any reason, but now has the added detriment of significant restrictions on future employment. The employer retains the same right to terminate the employee as it had before the agreement was signed. This lack of a bargained-for exchange makes the consideration illusory. The majority's reliance on a retrospective, 'good faith' analysis of how long employment continued is contrary to traditional contract principles, where consideration is assessed at the time of formation. Given the unequal bargaining power inherent in the employer-employee relationship, public policy requires independent, additional consideration beyond mere continued employment to support a post-hire non-compete.
Analysis:
This decision aligns Vermont with the majority rule, providing clarity and predictability for employers seeking to enforce non-competition agreements signed by existing at-will employees. It solidifies the 'forbearance from termination' theory of consideration, making it easier for employers to implement such agreements without offering new benefits like raises or promotions. Consequently, future legal challenges to non-competes in Vermont are more likely to focus on the reasonableness of the restrictions (geography, time, and scope) rather than on the initial validity of the contract for lack of consideration. The ruling shifts the primary battleground in such litigation, potentially strengthening the position of employers.
