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North Carolina Noncompetes – What is Legal "Consideration?"

    Client Alerts
  • December 16, 2022

As previously discussed, post-employment noncompetes require thoughtful drafting and implementation in order to be enforceable in North Carolina. Courts and judges don’t like them, but they can be an incredibly valuable tool for employers to protect the company’s legitimate business interests. While one-size-fits-all noncompetes, such as restricting an employee from generally working for a competitor, will not fly in North Carolina, including specific language prohibiting the employee from “performing similar work” or describing the employee’s job duties within the noncompete can strengthen its enforceability. This quick update, however, focuses on what counts as “valuable consideration” to make the noncompete binding.

Consideration is a relatively familiar term in the corporate and contracting world. It’s referred to as the “glue that holds the contract together.” When parties come together, each party must generally provide something or give something up to make the contract binding rather than have it labeled as a gift or gratuitous offer. The most common consideration we can think of is money. For example, if I pay a handyman $100.00 to fix my sink, the consideration exchanged is money for services. Each party is giving something up.

In the noncompete world, the consideration must be valuable. Unequivocally, new employment qualifies as valuable consideration in North Carolina, but continued employment (without more) does not. This distinction means that an employer may not just walk into an employee’s office, hand them the noncompete, and request that they sign. If the employment relationship has already started, then the valuable consideration must be something else.

North Carolina courts have held the following to meet the “new” or “separate” consideration required for a noncompete after the employment relationship has already started: a raise, bonus, or other change in compensation; a promotion; additional training; uncertified shares; or some other increase in responsibility or number of hours worked. Importantly, however, the consideration must not be illusory, meaning that its payment cannot be conditional on other events happening. While courts will not judge the adequacy (meaning the amount) of consideration provided, they will quickly declare a noncompete invalid if it finds the consideration to be conditional or subject to forfeiture.

Noncompetes and other restrictive covenants related to employment need to be carefully reviewed and implemented with in-house or outside legal counsel. There are many traps and pitfalls employers can find themselves in, and an ounce of preparation can be worth a pound of cure when enforcing noncompetes in North Carolina.