Non-Compete Agreements 101: Consideration and Undue Hardship - PolyOne Corp. v. Barnett
In PolyOne Corp. v. Barnett, the district court for the Northern District of Ohio explains that just because both an employer and employee have signed a non-compete agreement doesn't mean the agreement is necessarily enforceable. Among other requirements, the agreement must not be overly burdensome and must be executed in exchange for adequate consideration.
Plaintiff PolyOne Corporation provides polymer services and materials around the world. Defendant April Barnett worked at PolyOne's Seabrook, Texas facility since 1992. In 2007, PolyOne began requiring certain high-level employees, including Barnett, to sign non-compete and confidentiality agreements in exchange for enrollment in the company's long-term incentives program. Barnett signed an agreement in April of that year in which she agreed both to not compete with PolyOne for a period of one year after the termination of her employment and to protect PolyOne's confidential and trade secret information and return such information upon termination of her employment.
In 2010, PolyOne allegedly demoted Barnett from her position as Marketing Director and removed her from the company's long-term incentives plan. In March 2011, she informed the company that she was resigning to take a job with Bayshore Industrial, a competitor. PolyONE sued, claiming that Barnett would breach the non-compete and confidentiality agreements by accepting the Bayshore job and asked the court to issue a temporary restraining order (TRO) preventing Barnett from working for Bayshore or otherwise violating the agreements.
Following a hearing on the matter, the court denied the TRO request, finding that PolyOne cannot show it is likely to succeed on the merits of its case. In order to enforce a restrictive covenant - a contract that prevents a person or entity from doing certain things - the party seeking to enforce it must first prove that the covenant is valid. According to the court, PolyOne is unable to show that the non-compete agreement is valid because its interpretation of the terms - asserting that it prohibits Barnett from working for any competitor in any capacity - would impose an undue hardship on Barnett because she has spent the majority of her adult life working in the polymers industry and would have to find work in another industry.
Furthermore, the court held that the agreement was not based on adequate consideration. In order for a contract to be valid, each party must exchange something of value. In this case, PolyOne enrolled Barnett in the company's long-term incentives plan in exchange for signing the non-compete and confidentiality agreements. However, PolyOne later withdrew this consideration when it demoted Barnett. Since, according to the Court, "it is far from certain whether the court would enforce a non-compete agreement for which the consideration has been removed," it found that Barnett's likelihood of success in enforcing the agreement was not sufficient to justify issuing the requested TRO.
Non-compete agreement law suits often raise complex issues for both parties. At DiTommaso Lubin, our Chicago business attorneys represent individuals and businesses in noncompete agreement litigation. We are pleased to assist clients throughout the Chicagoland area as well as clients in Indiana and Wisconsin. To contact a lawyer at our firm, call (877) 990-4990 or (630) 333-0000. You may also contact us by e-mail.
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