Post-Employment Compensation Can Provide Consideration for Afterthought Covenant (Thiesing v. Denstply Int'l)

Minnesota is one of a number of states that prohibit an employer from binding an employee to an afterthought non-compete agreement - one signed after the beginning of employment - absent independent consideration. The most common types of consideration are special training, the opportunity to participate in incentive programs, payment of one-time bonuses, or a promotion.

But another, frequently overlooked type of consideration that is not as immediately recognizable is "post-employment compensation."

How does this work, and how can it provide the requisite consideration to support a covenant?

The employee's agreement specifically provides that if an employee is unable to obtain work reasonably commensurate with his or her education and experience as a result of a covenant, then the employer must make the employee whole in terms of compensation for a the shorter of the period of unemployment or the expiration date of the covenant.

The agreement also should contain a make-whole provision so that if an employee finds a lower-paying job, the employer must pay the difference between the new wage and that the employee earned at the time of termination.

Not every post-employment compensation provision will satisfy contract formation requirements. For instance, some provisions place a subjective standard on the employee to diligently or conscientiously look for work and document efforts to the ex-employer. As should be apparent, there is wide latitude for the employer to deny compensation under such clauses. Courts in Minnesota have held that when an employer chooses to enforce a non-compete, a conditional promise to pay - that is, upon the employer's finding that the employee diligently searched for work - is illusory. An unconditional promise, however, will provide consideration.

In contract provisions calling for post-employment compensation, an employee must examine whether the employer retains discretion to pay or to impose conditions on pay. This ordinarily will determine whether the consideration element can be met.

--

Court: United States District Court for the Eastern District of Wisconsin
Opinion Date: 9/28/10
Cite: Thiesing v. Dentsply Int'l, Inc., 2010 U.S. Dist. LEXIS 102373 (E.D. Wis. Sept. 28, 2010)
Favors: Employer
Law: Minnesota