On September 30, 2010, oral argument (audio file) took place in an important case regarding non-compete law before the Colorado Supreme Court. The case is Lucht’s Concrete Pumping, Inc. v. Horner et al., Case No. 09SC627, and the issue on appeal is whether continued at-will employment is sufficient consideration to enforce a non-competition agreement entered into after the employment relationship commenced.
Other states, including South Carolina, Washington and Montana, have already addressed this issue, finding that continuation of at-will employment alone is insufficient consideration for a non-compete. Here, in Colorado, however, we await this important decision. It’s worth noting that Colorado has a strong public policy against the enforceability of non-competes generally, subject to narrow exceptions outlined by statute.
Background Facts & Decisions Below:
- Lucht’s Concrete Pumping, Inc. (LCP) is a concrete pumping company that supplies ready-mix concrete in the Rocky Mountain region.
- In 2001, Tracy Horner began his employment with LCP as its mountain division manager. Essentially, he was a relationship guy who was responsible for building the clientele of LCP.
- On April 15, 2003 (2 years later), Mr. Horner (an at-will employee) was asked to sign, and did sign, an Employee Non-Disclosure and Confidentiality Agreement with LCP. No additional consideration was given to Mr. Horner in exchange for his execution of the agreement, which included a 1-year non-competition covenant.
- On March 12, 2004, Mr. Horner resigned from LCP.
- On March 15, 2004 (3 days later), Mr. Horner began working for Everist – a direct competitor of LCP in the ready-mix concrete supply business.
- LCP’s business in the mountain region tanked, and LCP brought suit. (Thereafter, in 2008, LCP filed for Chapter 11 bankruptcy.)
- TRIAL COURT DECISION: The trial court granted summary judgment in favor of Mr. Horner, holding that the non-compete agreement was unenforceable due to lack of consideration. A bench trial was held on the remaining claims, all of which were resolved in favor of Mr. Horner and Everist.
- COURT OF APPEALS DECISION: The Colorado Court of Appeals, 2009 WL 1621306 (Colo.App. June 11, 2009), affirmed the trial court’s decision and noted that “[Mr.] Horner did not receive anything in return for his promise not to compete.” Although the Court of Appeals didn’t specify how much consideration would be sufficient, it did characterize the type of consideration necessary to enforce a non-compete entered into after employment begins such as a “pay increase, promotion, or additional benefits.”
If the Colorado Supreme Court affirms the Court of Appeals, the unanswered question will then become how much consideration is enough to support a non-compete agreement entered into at any other time but hire.
Stay tuned for an update on my blog once the Colorado Supreme Court publishes its ruling.