Central Adjustment Bureau, Inc. v. Ingram

678 S.W. 2d 28 (Tenn. 1984).

One-Sentence Takeaway: A covenant not to compete signed prior to, contemporaneously with, or shortly after employment begins is part of the original agreement and is supported by adequate consideration.

Summary: The case involved claims by an employer (Plaintiff) against three of its former employees (Defendants) for breaching the noncompete agreements.

Evidence showed that Defendants were asked to sing non-competition agreements shortly after their employment with Plaintiff had already commenced.  Defendants were informed that they had to sign the agreements in order for them to continue their employment with Plaintiff.

Defendants signed the non-competition covenants and continued to work for Plaintiff for years and enjoyed promotions and raises.  Thereafter, Defendants resigned and started a new business that competed directly with Plaintiff.

Plaintiff sued Defendants for breach of the noncompete agreements.  In their defense, Defendants argued that the non-competition agreements were unenforceable because they were no presented to them during the employment negotiations and, instead, Plaintiff asked Defendants to sign the agreements after the employment had already commenced.  Defendants argued that the agreements therefore were not enforceable because there was no bargaining that is required for consideration.

The trial court awarded Plaintiff $80,000 in damages.  The court of appeals, however, reversed and ruled that the non-competition covenants were unenforceable for lack of consideration.

The Tennessee Supreme Court reversed and held that the noncompete agreements were supported by consideration and were enforceable.

The high court reasoned that Defendants signed the covenants and in exchange for their signatures, Plaintiff offered them prosperous careers.  “[C]ovenant is enforceable provided the employer continues to employ the employee for an appreciable length of time after he signs the covenant, and the employee severs his relationship with his employer by voluntarily resigning.”  Defendants’ argument that Plaintiff had no obligation to employ them and the company could have fired Defendants right after they signed the covenants was not accepted by the court.  “The authorities are uniform in holding that where there has been full or substantial performance by one party to a bilateral contract, originally invalid for want of mutuality of obligation, the other party cannot refuse performance after receiving the promised benefits.”

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