Labriola v. Pollard Group, Inc. 152 Wash.2d 828 (2004 )

In November 2004, the Washington Supreme Court concluded that a non-compete agreement entered into after employment has commenced is validly formed only when there is independent consideration at the time the agreement is reached. 

In 1997, Pollard Group, Inc. (Pollard) hired Labriola to work as a commercial print sales person.  In connection with his hiring, Labriola signed an employment agreement.  The agreement contained a covenant restricting him from competing for certain customers for three years after his employment with Pollard ended.  In April 2002, i.e., nearly five years later, Pollard asked Labriola to execute a new and more restrictive non-compete requiring him to agree not to accept employment with any competitor for a period of three years  within 75 miles of Pollard’s business in Tacoma.  Significantly, Labriola remained an at-will employee and received no additional benefits, and Pollard incurred no additional obligations. 

A few months later, in July 2002, Pollard announced a new commission sales compensation schedule that would result in lowering Labriola’s potential earnings.  As a result, Labriola began looking for similar employment elsewhere.  In November 2002, Pollard terminated Labriola after learning that he intended to seek employment with a competitor.  After Pollard sent a letter to the competitor stating its intent to enforce Labriola’s non-compete agreement, the competitor decided not to hire him. 

Labriola sued Pollard, seeking a declaratory judgment that the non-compete agreement was null and void.  Lanbriola moved for partial summary judgment that the non-compete agreement was unenforceable.  The trial court denied the motion, upheld the agreement and refused to modify the three year restriction to six months.  The Supreme Court granted direct review. 

The issue before the Supreme Court was whether there is consideration for the formation of a contract when an employee, already employed by the employer, executes a non-compete agreement but receives no new benefit and the employer incurs no further obligations.  Labriola argued that the non-compete agreement failed for lack of consideration; i.e., a contract was not formed.  Pollard contended that the agreement was enforceable because future and continued employment and/or job training served as adequate consideration.

In analyzing this issue, the Supreme Court explained that consideration exists if the employee enters into a non-compete agreement when first hired and that an agreement entered into after employment will be enforced if it is supported by independent, additional consideration, which could include increased wages, a promotion, a bonus, a fixed term of employment, or perhaps access to protected information – i.e., “new promises or obligations previously not required of the parties.”

Labriola signed the new non-compete agreement nearly five years after starting work for Pollard.  The agreement made no promises as to future employment and wages and offered no extra benefits or promises.  Pollard incurred no additional duties or obligations.  Because Labriola remained an "at will" employee, continued employment was not consideration in exchange for his promise not to compete.  The Supreme Court also rejected Pollard’s argument that the training Labriola received after signing the agreement served as consideration.  There was no evidence that the training was any different than it would have been had he not signed the agreement.  The training was not promised as consideration for his promise not to compete. 

While the 2002 non-compete agreement lacked independent consideration and was not enforceable, Labriola conceded that the 1997 agreement; i.e., the one he signed before starting employment, was enforceable as it did not restrict him from working for a competitor but instead limited him from seeking to compete for certain actual and potential customers.

Significantly, the concurring justices made the further point that, in their view, the new non-compete agreement would be void as unreasonable even if there were adequate consideration, because it barred Labriola from working in his field of expertise under any circumstance; i.e., even if he took no unfair advantage of his prior employer.  The justices stated that this post-employment restraint was more restrictive than reasonably necessary to protect legitimate business interests.