Articles

Continued Employment Can Support Restrictive Covenant

February, 2023

CT APPEALS COURT:

CONTINUED EMPLOYMENT COULD CONSTITUTE SUFFICIENT

CONSIDERATION TO SUPPORT A NONDISCLOSURE AGREEMENT

FOR AT-WILL EMPLOYEE

Reversing a lower court that had granted summary judgment to the defendant, the Connecticut Appellate Court has ruled that continued at-will employment can be sufficient consideration for a restrictive covenant in a nondisclosure agreement.  Schimenti Construction Company, LLC v. Joseph Schimenti, 217 Conn. App. 224 (Jan. 17, 2023).

The plaintiff construction company had sued it former managing director after he left the company for a competitor construction company.

The defendant, Joseph Schimenti, was employed by the plaintiff since 1998.  In 2014, in return for a promotion, the company presented Schimenti with a promotion letter and attached  nondisclosure agreement, which stated that it was “in consideration and as a condition of my employment [by the plaintiff]….”  Another section of the nondisclosure agreement contained a non-compete clause which prohibited Schimenti from competing with the construction company’s business during his employment and for two years after his termination.

In 2018, Schimenti resigned his employment and went to work for a competitor construction company. 

The plaintiff then sued, claiming the Schimenti breached the nondisclosure agreement.

In a motion for summary judgment before the trial court, the defendant Schimenti claimed that the restrictive covenants were unenforceable because of a lack of consideration, that is, the only item of value that he received for his signing the nondisclosure agreement was his continued employment.  The plaintiff construction company argued that the promotion letter provided an increase in compensation and that Schimenti signed the nondisclosure agreement as a condition of his continued employment in his new position.

The trial court granted the defendant’s summary judgment motion, stating, “a party giving nothing more than the status quo of continuing employment, neither offering a benefit nor accepting harm, offers no consideration to exchange for his promise and the promise is, therefore, unenforceable.”

The Appeals Court reversed the grant of summary judgment to the defendant.  In relying upon a Connecticut Supreme Court case, Roessler v. Burwell, 119 Conn. 289 (1934), Court held that the binding precedent of that case makes “consideration in the form of continued employment for at-will employees can be sufficient to make enforceable a restrictive covenant agreed to by the parties at some point after the commencement of employment …”  “We conclude, therefore, that there is at least a genuine issue of material fact that the defendant’s continued employment alone was sufficient consideration to support the nondisclosure agreement.”

Key to this holding was the Court’s holding that “Because he was an at-will employee, the defendant’s continued employment could have been terminated by the plaintiff at any time, and, thus, the defendant’s continued employment could constitute sufficient consideration to support the nondisclosure agreement.”