http://www.ncbusinesslitigationreport.com/Courts Shouldn't Question The Adequacy Of Consideration For Covenants Not To Compete, Rules NC Court Of AppealsNorth Carolina Business Court Dismisses Claim That Confidentiality Agreement Was Invalid Because It Was Overly BroadCovenant Not To Compete, And Summons, Held InvalidCourt Of Appeals Rules That NC Wage And Hour Act Has No Application Outside North CarolinaDismissed Employee Did Not Have Public Policy ClaimMESSAGE FROM ASSOC. PROF. PAMELA S. EVERS, ATTORNEY AT LAWThis article has been offered by web posting to UNCW students for educational purposes only. Articles posted may have been edited for clarity and format by Pamela S. Evers. http://www.ncbusinesslitigationreport.com/Courts Shouldn't Question The Adequacy Of Consideration For Covenants Not To Compete, Rules NC Court Of Appeals Posted on April 7, 2009 by Mack Sperling The adequacy of the consideration for a covenant not tocompete entered into after the commencement ofemployment was the issue in Hejl v. Hood, Hargett, &Associates, Inc., decided by the Court of Appeals today.In Hejl, the employer dealt with the considerationrequirement by paying Hejl $500 to sign the non-compete. Hejl signed and took the money, but argued after he left hisemployer that the consideration for the non-compete wasn't"anything of substance." He persuaded the trial court toinvalidate the covenant for lack of consideration. The Court of Appeals disagreed with that aspect of the trialcourt ruling. Judge McGee said that the trial courtshouldn't have considered the issue of the adequacy of theconsideration, and held:the parties to a contract are the judges of the adequacy ofthe consideration. "'The slightest consideration is sufficientto support the most onerous obligation, the inadequacy, . . .is for the parties to consider at the time of making the agreement, and not for the court when it is sought to be enforced.'" Where there is no fraud and the "'parties have dealt at arms length and contracted, the Court cannot relieve one of them because the contract has proven to be a hard one.'"Plaintiff makes no allegation the Agreement was induced by fraud. Further, the consideration was not illusory because Plaintiff accepted the $500.00 at the time he signed the contract. Therefore, because the parties dealt at arms length, and the Plaintiff received $500.00 as consideration for signing the Agreement, we find the Agreement is not void due to lack of consideration.,The Court also summarized the types of consideration that can support a covenant not to compete entered after an employment relationship has begun:Our Courts have held the following benefits all meet the "new" or "separate" consideration required for a non-compete agreement entered into after a working relationship already exists: continued employment for a stipulated amount of time; a raise, bonus, or other change in compensation; a promotion; additional training; uncertificated shares; or some other increase in responsibility or number of hours worked.Notwithstanding the win on the consideration battle, the employer in the Hejl case lost the war on the issue of the reasonableness of the restriction. Although the Court of Appeals held that the three year period of the restriction was presumptively reasonable, it found that the geographic territory was not. The employer had attempted to enjoin Hejl from competing not only in Charlotte, where its office was located, but also throughout North and South Carolina. The restriction further extended to any potential customer to whom the employer had "quoted any product or service." The Court found the two state restriction too broad, because Hejl did have "any personal knowledge of Defendant's customers in those areas." The attempted extension to customers who had only gotten a proposal, as opposed to having done any actual business with the employer, was also deemed by the Court to be too broad. North Carolina Business Court Dismisses Claim That Confidentiality Agreement Was Invalid Because It Was Overly Broad Posted on December 28, 2008 by Mack Sperling Can a confidentiality agreement be too broad to be enforced? The North Carolina Business Court said it can be, under some circumstances, in Covenant Equipment Corp. v. Forklift Pro, Inc.Before you keep reading, know that the case involved South Carolina, not North Carolina, law. North Carolina law on this point looks to be pretty different, as discussed at the very end of this post, but the case is still worth a look.The facts are typical for a lawsuit against a former employee: Caldwell had sold his forklift business to the Plaintiff and became Plaintiff's employee. As a part of the sale, Caldwell agreed that he “w[ould] not, directly or indirectly, disclose or furnish any non-public, proprietary or confidential information obtained from or relating to the Business.”Caldwell left the Plaintiff and started a new competitive business. The Plaintiff sued, arguing thatCaldwell had breached his confidentiality obligations. Caldwell moved to dismiss this claim, arguing that under South Carolina law the confidentiality provision was overly broad and unenforceable.The motion to dismiss was based on the South Carolina Supreme Court’s 1996 decision in Carolina Chemical Equipment Co. v. Muckenfuss, 471 S.E.2d 721 (S.C. 1996), where it held thata broad confidentiality agreement, which would have the effect of a covenant not to compete, will be subject “to the same scrutiny as a covenant not to compete.” The confidentiality agreement at issue in Muckenfuss prohibited the use of virtually all of the knowledge which Muckenfuss had gained during his employment with the plaintiff. The South Carolina Supreme Court held that this broad provision was tantamount to a covenant not to compete, and that it wasinvalid because it contained no restrictions as to time or territory.The following year, however, the South Carolina Legislature overruled Muckenfuss, at least in part, by enacting the South Carolina Trade Secrets Act. A provision of that statute provides that “a contractual duty not to disclose or divulge a trade secret, to maintain the secrecy of a trade secret, or to limit the use of a trade secret must not be considered void or unenforceable or against public policy for lack of a durational or geographical limitation.” S.C. Code Ann. §39-1-30(D) (2007). (There is no counterpart to this provision in the North Carolina Trade Secrets
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