Access Organics, Inc. v. Hernandez Background and Facts • Bonnie Poux hired Andy Hernandez to sell organic produce for her sole proprietorship, Access Organics, Inc. Four months later, he was promoted to sales manager. Soon after, he signed a non-compete agreement in which he agreed “not to directly or indirectly compete with the business … for a period of two years following termination of employment.” Later, the business encountered financial difficulties. Hernandez left and went into business with another former employee to compete with Access Organics in the sale of produce in the same part of Montana. Poux then sued to enforce the non-compete agreement. The trial court found that Hernandez had violated the non-compete agreement and ordered him not to compete directly with Access Organics for the two-year period called for in the agreement. The court held that the agreement was valid because it was supported by consideration, which was continued employment at Access Organics at the time the agreement was signed. Hernandez appealed.
Hernandez argues that the non-compete agreement is invalid and unenforceable because it is not supported by good consideration. Access Organics contends that Hernandez’s salary and continued employment supplied sufficient consideration.

Consideration exists if the employee enters into the non-compete agreement at the time of hiring. During pre-employment negotiations, the employee and the employer engage in a bargained-for exchange: the employer obtains the desired non-compete agreement, and in return, the employee receives employment. The non-compete agreement is simply a condition of employment that the employee takes into account when accepting or rejecting the employment offer. Here, the agreement purports to offer employment in exchange for Hernandez’s promise not to compete: “as an inducement for Access Organics * * * to employ Andy Hernandez, he * * * hereby agrees not to * * * compete * * *.”

However, Hernandez signed the agreement more than four months after accepting his initial employment offer from Access Organics. The record clearly shows that the agreement was not signed as part of Access Organics’s pre-employment negotiations with Hernandez. The basic precepts of black-letter contract law teach us that “past consideration is not sufficient to support a promise.” Thus, prior work may not serve as a consideration. Access Organics’s initial offer of employment to Hernandez is past consideration and may not serve as consideration for the non-compete agreement signed four months later. [Emphasis added.]

However, “afterthought agreements”—non-compete agreements signed by employees after the date of hire are not automatically invalid. Non-compete agreements entered into by existing employees may be supported by independent consideration. For example, an employer may provide an employee with a raise or promotion in exchange for signing a non-compete agreement. In such instances, the salary increase or promotion serves as good consideration. Access to trade secrets or other confidential information may also suffice as a form of good consideration. In each of these examples, the employee receives a benefit that constitutes good consideration in exchange for his or her promise not to compete. [Emphasis added.]

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When a current employee is required to sign a non-compete agreement, the employer and employee are not on equal bargaining ground: the employee is vulnerable to heavy economic pressure to sign the agreement in order to keep his job. Thus, in the context of non-compete agreements, we require clear evidence that the employee received good consideration in exchange for bargaining away some of his post-employment freedom to practice the profession or trade of his choice.

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We conclude that the covenant not to compete between Andy Hernandez and Access Organics is unenforceable for lack of consideration. Thus, the District Court erred in determining that the agreement was enforceable as a matter of law. Since the agreement is unenforceable as a matter of law, the District Court also erred in granting the preliminary injunction against Hernandez. Thus, we reverse and remand for further proceedings consistent with this opinion.

Decision and Remedy • Montana’s highest court held that the non-compete agreement between the employer and the employee was invalid because it was not supported by consideration. Because no contract had been formed, the trial court’s injunction enforcing the agreement against Hernandez was removed.

1>The Legal Environment Dimension • How could Access Organics have obtained a non-compete agreement from Hernandez that would have been enforced?

2>The Ethical Dimension • Would an economic recession and global financial crisis excuse a former employee from having to comply with a non-compete clause that he or she had signed? Why or why not?