Monday, June 9, 2008, 11:18 AM

Consideration - Mere Continuation of Employment May Not Be Enough in Georgia

As most practitioners here know, Georgia public policy is extremely hostile to employee non-compete agreements. There are many traps for the unwary. On the issue of consideration, however, Georgia is actually pretty lenient compared to some other states. It is almost axiomatic that “mere continuation of employment” usually provides sufficient consideration. That is, in Georgia the employer is generally not required to pay the employee any additional money (or promotion or other enhancement), even if the employee is required to sign the covenant long after the employment commences.

But there is an important, and easily overlooked, caveat to this axiom, as demonstrated by the Georgia Court of Appeals in Glisson v. Global Security Services, LLC, 287 Ga. App. 640 (2007). In Glisson, the employee was required to sign a new non-competition agreement approximately 18 months into his 2-year employment agreement. This requirement was apparently prompted by the departure of several other employees. The new covenant expressly conditioned continued employment upon the signing of the new agreement, which prohibited the employee from competing in certain specified counties for 2 years following termination. The employee signed the new covenant, but several months later he resigned. The company sued to enforce the covenant, and the trial court granted the company’s requests for injunctive relief.

The Court of Appeals reversed, finding a failure of consideration. After noting the general rule that continuation of employment is usually sufficient, the Court pointed out that, in this case, the contract provided that, during the first two years, the employee could be terminated only for “cause,” and “cause” did not include refusal to sign the covenant. Because of this, the Court reasoned that the company was under a preexisting duty to continue the employment, at least until expiration of the 2-year term. “Thus, although the [new] agreement purportedly conditioned [the employee’s] continued employment on adherence to its terms, [the company] was already obligated to employ him through [the end of the 2-year term]. And a promise to perform a preexisting contractual obligation does not constitute consideration for a new agreement.” Id. at 641 (emphasis in original). The trial court abused its discretion in finding the covenant to be enforceable and in granting the injunction.

Main point: Before assuming that mere continuation of employment provides sufficient consideration for a non-compete covenant, be sure that the employment is truly “at will.” Otherwise, the preexisting duty rule may bite you.

Bonus point: The Court noted that the agreement recited $10 as additional consideration, but the evidence showed that the $10 dollars was never actually paid. Query whether the result would have been different had the company simply forked over the ten spot.

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