Inside: Contemplating consideration for non-compete agreements

What constitutes adequate consideration for a restrictive covenant varies from state to state

Like all other contracts, restrictive covenants (including non-compete agreements) must be supported by adequate consideration at the time they are executed. What constitutes adequate consideration for a restrictive covenant, however, varies from state to state. As a result, understanding in which state a particular non-compete may need to be enforced and ensuring at the outset that adequate consideration has been provided to the employee under the law of that state are key to having enforceable restrictive covenants.

Where a restrictive covenant is executed as part of an original employment agreement at the time employment is accepted, the offer of employment is generally considered adequate consideration for the covenant. Nonetheless, explicitly identifying a specific portion of the employee’s compensation or other benefits as consideration for the restrictive covenant can remove any questions about the adequacy of consideration for a non-compete with a new employee.

Contributing Author

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Jeffrey S. Boxer

Jeff Boxer is a partner at Carter Ledyard & Milburn LLP. Mr. Boxer is a member of the firm’s Litigation Department and Trade Secrets, Business...

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Contributing Author

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Emily Milligan

Emily Milligan is counsel at Carter Ledyard & Milburn LLP in New York. She is a commercial litigator whose practice focuses on restrictive covenants and...

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