What’s enough ‘consideration’ in a noncompete?
Q. I understand that “consideration” is required for noncompete agreements in North Carolina, and that, for existing employees, continued employment is not valid consideration. How much must a company pay to have sufficient consideration?
A. You are correct that consideration (something of value—generally money) is required to be given to an employee in exchange for a noncompete restriction. The consideration is often the payment of money.
In regard to how much is paid, North Carolina courts generally do not evaluate the adequacy of the consideration, but only determine whether consideration was actually given. In a recent Court of Appeals case, the court reaffirmed this principle and held that a payment of $500 constituted consideration for a covenant not to compete.
Also, remember that there are other types of consideration:
- The initial employment, if the noncompete is signed before employment starts
- Continued employment for a stipulated amount of time
- A raise, bonus, or other change in compensation
- A promotion or additional training
- Some other increase in responsibility (or, for hourly employees, some increase in the number of hours worked).
The consideration must be new, separate from existing benefits and not illusory. It is a good practice for the parties to specifically set forth the consideration in any noncompete agreement.