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Kentucky Supreme Court: Continued Employment Alone is not Adequate Consideration

On June 19, 2014, the Supreme Court of Kentucky decided Creech v. Brown, concluding more than five years of litigation over the enforceability of an employer’s non-compete agreement.  The employer lost, and Kentucky employers wishing to avoid the same fate should consider this decision carefully.

Brown worked for Creech for 18 years. Creech is in the business of providing hay and straw to Kentucky farms. After 16 years of employment, Creech asked Brown to sign a non-competition agreement, which he signed.  The agreement prevented Brown from working for any of Creech’s competitors for a period of three years after his employment ended. No one told Brown that his continued employment was contingent on his signing the agreement, and he did not receive any monetary consideration for signing the agreement. Two years later, Brown resigned and started working for a competitor.

Creech filed a lawsuit against Brown and his new employer.  The Supreme Court of Kentucky refused to enforce Creech’s agreement because, in the Court’s opinion, it was not supported by adequate consideration. After signing the agreement, Brown remained an at-will employee and did not receive any promotion, increase in wages or special training during the remainder of his employment. As a result, the Court concluded that Brown received no consideration at the time he signed the agreement, or even after he signed the agreement.

The Supreme Court distinguished two prior decisions enforcing non-compete agreements based on continued employment as consideration. In the earlier cases, consideration existed by virtue of the fact that the terms and conditions of employment changed in positive ways for the employee. The employees either received wages, promotions or specialized training which they would not have otherwise acquired. None of these facts were present in the Creech case.

In the past, employers routinely relied upon continued employment as sufficient consideration to support their non-compete agreements. The Supreme Court of Kentucky has now made clear that is no longer an option. Employers must carefully craft their agreements to protect their rights. Each situation is different, and employers must take care to provide adequate consideration to an employee signing a non-compete agreement.

For more information, please contact Mark McAnulty at mmcanulty@KDDK.com or (812) 423-3183; or contact any member of the KDDK Labor and Employment Law Practice Team.

About the Author

Mark A. McAnulty

Mark A. McAnulty, an attorney at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Indiana, practices business law and labor and employment law, and is a member of the KDDK litigation and trial services practice team. Licensed to practice in Indiana, Illinois, Kentucky, and Missouri, Mark has represented clients in administrative and judicial proceedings throughout the tri-state area. Mark counsels clients regarding hiring and disciplinary issues, as well as compliance with local, state and federal employment laws. Mark also works with clients in reviewing and drafting employment contracts, non-compete agreements, and employee handbooks; and has advised and represented employers in labor management and union avoidance matters.