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Continued Employment is Not Sufficient Consideration to Enforce a Non-Compete Agreement Signed After Employment Has Started (Hawaii)


The Standard Register Co. v. Keala - US District Court for the District of Hawaii


Facts:  Lynden Keala, Jaxcine Kaulili-Guzon, and Sharon Brown-Henry all worked for The Standard Register Co. and WorkflowOne LLC ("WorkflowOne").  Each of the employes signed agreements with WorkflowOne in which they agreed to 1) not disclose the confidential trade secrets of WorkflowOne; and 2) for a period of twelve months after their last date of employment with WorkflowOne, not solicit business competitive to WorkflowOne.  While Keala signed the agreement around the time he started back with WorkflowOne, both Kaulili-Guzon and Brown-Henry signed the agreements after they had been working at WorkflowOne for a period of time.

After the former employees left their positions at WorkflowOne, suit was subsequently filed against the former employees as well as their current employer.  WorkflowOne based its claims on the grounds that the former employees violated the employment agreement with WorkflowOne when the former employees went to work for the new company and solicited clients and disclosed trade secrets from their former employer.

WorkflowOne filed a Motion for Temporary Restraining Order and requested that the court enter an order that would prohibit Defendants from 1) breaching the non-solicitation and non-disclosure provisions of the former employees' agreements with WorkflowOne; 2) misappropriating, disclosing, or otherwise using WorkflowOne's trade secrets; and 3) tortiously interfering with WorkflowOne's valid business relationships and contracts.

Holding:  The District Court denied the requested Temporary Restraining Order and held that as a result of a lack of valid consideration for the agreements the former employees signed, the agreements were not enforceable.  Had the consideration been a promotion or even a raise, that could have been deemed adequate consideration to enforce the non-compete agreements.   The Court relied upon a prior Hawaii Supreme Court case that dealt with a similar issue over what consideration is necessary to enforce a non-compete and held that since Brown-Henry and Kaulili-Guzon did not receive any consideration, beyond continued employment from WorkflowOne, the non-compete was not enforceable. 

Other jurisdictions, including Minnesota, Texas, Montana, and Washington were mentioned by the court as also holding that continued employment was not sufficient consideration to enforce a non-compete agreement entered into after employment had already started.  

Judgment:  The District Court denied WorkflowOne's requested Temporary Restraining Order and held the non-compete agreements were not enforceable as the consideration offered by WorkflowOne, mere continued employment, was not sufficient consideration to enforce the non-compete agreements.

The Takeaway:  Readers of the blog are aware that non-compete agreements are a favorite topic of mine.  This case is a good example of how different jurisdictions view non-competes, particularly in the area of what consideration is needed to enforce the non-competes.  In this instance, Hawaii is one of the jurisdictions that holds continued employment is not sufficient consideration to enforce a non-compete.  Employers and employees should check the law in their jurisdiction before seeking to sign, let alone enforce, a non-compete agreement.

Majority Opinion Judge:  Judge Seabright

Date:  July 11, 2014

Opinion:  http://www.employmentmattersblog.com/files/2014/07/The-Standard-Register-Co.-v-Keala.pdf


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