Kentucky Supreme Court Finds Continued Employment Alone Insufficient Consideration To Support A Restrictive Covenant

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On June 19, 2014, the Supreme Court for the Commonwealth of Kentucky held that for continued employment to be deemed sufficient consideration for the enforcement of a restrictive covenant agreement, there must be a change in the employment relationship between the parties.

In Charles T. Creech, Inc. v. Donald E. Brown and Standlee Hay Company, Inc., the Kentucky Supreme Court brought an end to a 6-year battle between the parties that included two separate trips to the Appellate Court before this final ruling by the state Supreme Court. At issue in Creech was a restrictive covenant contained in a “conflicts of interest” agreement that Brown was asked to sign 16 years after his employment with Creech began. The Appellate Court had determined that Brown’s continued employment with Creech after signing the agreement constituted sufficient consideration to support the post-employment noncompetition provision. The Kentucky Supreme Court disagreed.

The Supreme Court distinguished two earlier cases where continued employment coupled with a change in the employment relationship between the employer and employee was found to be sufficient consideration for the restrictive covenant agreement to be enforced against the employee.

Unlike these earlier cases, the Kentucky Supreme Court found that in the agreement Brown signed, Creech offered nothing to Brown in exchange for his signature. Because there was no change in Brown’s employment at Creech – he remained an at-will employee and received no promotions, wage increases or specialized training during the 2-year period after signing – there was no consideration given to Brown for signing the agreement. As a result, the Court deemed the agreement to be unenforceable.

As a best practice, employers in Kentucky (and elsewhere) should make sure that if they have current employees sign agreements containing new post-employment restrictions, that they also provide the employees with new and additional rights in an effort to have the agreements deemed to be enforceable.

 

by Michael D. Lee

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