Continued Employment is Inadequate Consideration in Absence of At-Will Employment

Cost Management Incentives, Inc. was a company that specialized in the placement of employees in the pharmaceutical industry.  This case addressed covenants signed by the company and two former employees, Ms. Yolanda London-Osborne and Ms. Kristen Herman.  The company presented the two employees with non-compete agreements in May 1996 after several years of employment.  The restrictive covenant contained a one-year non-compete clause and a two-year non-solicitation clause.

Neither woman was afforded the opportunity to consult with a lawyer to go over the agreement and both felt they were in jeopardy of termination should they refuse to sign.  The agreement did not offer anything in addition to their current salary and benefits.  Mr. David Hallen, the president and Chief Executive Officer of the company, gave them approximately five minutes to skim and sign the agreements, preventing the women from gaining a firm grasp on what their obligations were under the agreement.  The employees continued in their employment in same manner and with the same benefits until the company terminated them.

Inadequate Consideration

Cost Management sued the two former employees and asked the court to issue an order preventing any violations of the covenant.  Ms. London-Osborne and Ms. Herman both sought an order declaring that the agreement was unenforceable on the grounds of inadequate consideration and the inappropriate and egregious conduct of the company’s management.  Both former employees further contended that they did not breach the agreement and there was no indication that they were likely to do so.  The court found in favor of the former employees and held that the restrictive covenants were unenforceable because they lacked consideration and their provisions were so broad that they unnecessarily restricted their ability to procure future employment.

The restrictions in the agreement prohibited employment with any business enterprise engaged in facilitating temporary and/or permanent placement in the pharmaceutical industry for one year after termination.  The court found this specific nation-wide restriction to be reasonable since the company maintained national operations.

The court however found that the two-year non-solicitation clause was unreasonable and rendered the covenant unenforceable.  This was overly broad and restrictive since 70-75% of Cost Management’s business came from a mere six pharmaceutical companies.  The court commented that Cost Management should have tailored this clause to protect its legitimate business interests without placing such an extensive hardship on former employees.  Analysis of the covenants also led the court to hold that the provisions provided the employer with much more protection than was deemed necessary or permissible.

The Court’s Decision

While the finding of unreasonable provisions is sufficient to invalidate a restrictive covenant, the court went on to discuss the lack of consideration, a factor that also renders a non-compete agreement unenforceable.  Connecticut law indicates that continued employment is not adequate consideration for a non-compete agreement for employees that are not working on an at-will basis.  Continued employment is sufficient for employees working on an at-will basis but this was not the case with Ms. London-Osborne and Ms. Herman.

For these reasons, the court denied Cost Management’s request for injunctive relief and declared that the agreements were unenforceable and void under Connecticut law.

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