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All contracts, if they are to be enforceable, must be supported by a thing called legal consideration. Courts require the contract to include “a promise to render a stated performance in exchange for a return promise being given.” These exchanges of commitment are called “legal consideration.”
Let’s look at Labriola v. Pollard Group, Inc., 152 Wn.2d 828, 100 P.3d 791 (2004). In this case, the Washington State Supreme Court held that an employee non-compete agreement was unenforceable because it was not supported by NEW and independent legal consideration upon execution by a long-time employee. The court stated that a "noncompete agreement entered into after employment will be enforced if it is supported by independent consideration. . . . Independent, additional, consideration is required for the valid formation of a modification or subsequent agreement. There is no consideration when "one party is to perform some additional obligation while the other party is simply to perform that which he promised in the original contract." In this case, the employer told the employee that he could keep his job under the same terms of employment if he signed the non-complete agreement, and that he would be terminated if he did not sign the non-compete agreement. The court found that this was not sufficient consideration to make the non-compete enforceable because the employer gave nothing new in exchange for the new contractual restriction on the employees post employment job opportunities. So even in cases where parties have an ongoing relationship and one party wants to obtain new binding commitments from the other, for the new commitments to become legally enforceable as a contract, they must be supported by new legal consideration. In the Labriola v. Pollard Group, Inc. case, if the employer paid the employee something new in exchange for the new non-complete restriction, the employer would have had a much stronger case and might have even won the lawsuit. Furthermore, the contract document should be viewed and drafted as exhibit number 1 to a breach of contract lawsuit. To avoid consideration disputes, it is a good idea to spell out in the contract the fact that legal consideration was provided and received. Here’s an example: "Company acknowledges by its signature below that this Agreement is supported by new, valuable, adequate and sufficient consideration, the receipt of which Company acknowledges by its authorized signature below." If the Company signs the Agreement, and there is a dispute later, the Company will have a hard time convincing the court that legal consideration was not provided. Contact Mark D. Walters Comments are closed.
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