By Nick Beermann

In today’s marketplace of ever-increasing competition, many companies turn to noncompetition agreements or “noncompetes” to protect their goodwill, proprietary interests and intellectual property. Not surprisingly, as a result of their increased usage, noncompetes have become a common subject of litigation. With the exception of California, which characterizes noncompetes as a void restraints of trade1, noncompetes are generally enforceable across state lines so long as the agreements sought to be enforced meet certain requirements of the state where enforcement is sought.

Like the majority of states, Washington’s courts will enforce noncompetes so long as those noncompetes are reasonable. The general rule is that noncompetition agreements cannot be more restrictive than is reasonably necessary to protect the legitimate business interests of employers.2

In Washington, whether a covenant is reasonable has traditionally involved a consideration of three factors: 1) whether restraint is necessary for the protection of the business or goodwill of the employer; 2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill; and 3) whether the degree of injury to the public is such loss of the service and skill of the employee as to warrant non-enforcement of the covenant.3

As is clear from the foregoing three part test, what is or is not reasonable is largely open to interpretation depending on the facts of each case. For example, a covenant to not perform any type of work an employee provided for his or her former employer for a period of two years in a 100 mile radius might be considered unreasonable where the employer’s actual relevant market is only within a five mile radius and is seasonal. But a covenant barring a former employee from competing on a global basis for a period of one year might be ruled reasonable if such restraint is indeed necessary for the protection of a business with a relevant market of the entire world.

As if perceiving that attorneys often get mired in the details of the three-prong reasonableness test, the Washington Supreme Court in Labriola v. Pollard4, recently reminded everyone that noncompetes, because they are contracts, still require valid independent consideration to be considered enforceable, even if they are reasonable. Although this is not a new rule, it is a rule that substantially affects the validity of many currently existing noncompetes.

In Labriola, a commercial print salesperson, entered an employment agreement with Pollard Group, Inc., in 1997. The agreement contained a restrictive covenant not to compete in the custom printing business for a period of three years after his employment ended. In 2002, Pollard Group and Labriola executed a “Noncompetition and Confiden-tiality Agreement” that restricted Labriola from accepting employment from a competitor for a three year period within 75 miles of the Pollard Group’s business. Labriola remained an at-will employee and did not receive any additional benefits for entering the new agreement. After Labriola later sought employment with a competitor, Pollard Group terminated him. After the competitor did not hire Labriola, Labriola sought a declaration that the noncompete was null and void. A trial court denied partial summary judgment for Labriola and the Supreme Court accepted direct review.

On appeal, Labriola argued that the 2002 noncompete was unenforceable because it lacked consideration. In an argument many employers still view as valid, Pollard Group argued that the noncompete was enforceable because future and continued employment and/or job training served as the consideration for Labriola’s execution of the agreement.

Reaffirming that consideration exists if an employee enters into a noncompete agreement when he or she is first hired, the Court rejected Pollard Group’s argument. In response, the Court held that a noncompete entered into after employment has begun will be enforced only if it is supported by independent consideration, which the Court ruled might include increased wages, promotions, bonus, a fixed term of employment or “new promises or obligations not previously required of the parties.”5

The Court determined that Labriola’s 2002 non-compete was lacking independent consideration because Pollard Group admittedly made no promises as to future employment or wages, let alone any extra benefits or promises. The Court specifically rejected the idea that Pollard Group’s additional training constituted consideration on the basis that the agreement itself did not identify the training as consideration and that Pollard Group’s promise of training was no different than what it was already obligated to provide under Labriola’s original agreement. “While continued employment and/or continued training may serve as sufficient consideration, it certainly was not the case here.”6 The Court ultimately entered summary judgment in favor of Labriola on the 2002 non-compete and reversed the trial court’s summary judgment ruling against Labriola.

As the Court itself stated, the Labriola decision is not groundbreaking law, but simply a reiteration of a long standing rule of contract enforcement.7 However, it does change what many view as a long standing practice of business in which companies, fearing attrition amongst their employees, ask current employees to sign noncompetes in consideration of the employees’ future employment after the employees have already begun work or have been working for a period of time.

As is clear under Labriola, noncompetes given to employees to sign once they have begun working require independent consideration. As defined somewhat vaguely by the Court, that consideration might include increased wages, promotions, a bonus, a fixed term of employment for an at-will employee, but at a minimum must consist of a “new promises or obligations not previously required of the parties” that conveys something more than that which was bargained for or inherent in the original terms of employment.

Simply handing an employee a noncompete that does not mention the consideration provided and asking that employee to sign it without something more is insufficient. This is not to say that continued employment and/or continued training may not serve as sufficient consideration in every case, but Labriola requires any consideration provided, be it continued employment or otherwise, to be referenced in the noncompete and act as a promise in addition to what an employee was otherwise entitled to. Employers, employees and attorneys should take note.

1 See California Business and Professions Code ¤ 16600 (“every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.”).

2 Racine v. Bender, 141 Wash. 606, 612, 252 P. 115 (1927); Wood v. May, 73 Wn.2d 307,310-12,438 P.2d 587 (1968) (finding a geographical limitation of 100 miles was an overly broad and therefore unreasonable restriction on a professional horseshoer).

3 Id.

4 Labriola v. Pollard Group, Inc., 152 Wn.2d 828, 100 P.3d 791 (2004).

5 Labriola, 152 Wn.2d at 834; 100 P.3d at 794.

6 Id. at 838, 100 P.3d at 796.