According to an Oct. 6 North Carolina Court of Appeals ruling, $100 is adequate consideration for a noncompete agreement and parol evidence is permissible if essential terms are absent from the written evidence.
In Employment Staffing Group, Inc. v. Little, Defendant Monica Little had been working for staffing agency ESG for nearly 13 years when she signed an employment agreement, complete with noncompete provisions, in June 2014. She was paid $100 to agree to, among other terms, a two-year limitation on soliciting ESG’s customers should she leave the agency.
Little’s employment ended with ESG on July 21, 2014, and, according to ESG, she began soliciting their clients for her new employer, Atlantic Staffing Consultants. In November, ESG filed suit alleging breach of the agreement, conversion, tortious interference with contractual relations, misappropriation of trade secrets and unfair and deceptive trade practices.
Little argued that the employment agreement was unenforceable due to lack of consideration, one of six requirements for a valid noncompete agreement. According to court documents, it is undisputed that Little and ESG discussed consideration and records show that $100 was directly deposited into Little’s bank account on June 17, 2014.
But in appealing the Cleveland County Superior Court ruling granting ESG a preliminary injunction, Little claimed that the consideration was illusory since it was not mentioned in the written agreement, and inadequate because it was done under “pressure and duress” as a condition of her continued employment.
Little also argued that $100 is inadequate. The lowest amount established as adequate by prior case law was $500.
In the appeals court’s unanimous decision, Judge Lucy Inman noted that although the consideration was not mentioned in writing, there was a “separate oral agreement” between Little and ESG that she would be paid $100 for her signature.
Little relied, the court wrote, on the agreement’s merger clause that “[t]his agreement embodies the entire agreement of the parties relating to the subject matter in this Agreement” in claiming that the court is prohibited from considering a separate oral agreement in determining whether the noncompete agreement is enforceable.
The court found that while merger clauses are intended to “effectuate the policies of the Parol Evidence Rule … barring the admission of prior and contemporaneous negotiations on terms inconsistent with the terms of the writing,” and that North Carolina recognizes and upholds merger clauses, parol evidence here regarding the consideration is necessary to establish a necessary element of a valid covenant and not inconsistent with the agreement.
“In other words,” Inman wrote, “the evidence is necessary to show the existence of a complete contract.”
Inman cited language from Phelps-Dixon Builders, L.L.C. v. Amerimann Partners stating, “The parol evidence rule excludes prior or contemporaneous oral agreements which are inconsistent with a written contract if the written contract contains the complete agreement of the parties,” and the North Carolina Supreme Court clarification that the rule applies where all the terms of a contract are integrated in writing or where the writing supersedes all other agreements.
“The rule is otherwise where it is shown that the writing is not a full integration of the terms of the contract,” the Supreme Court held in Craig v. Kessing. “The terms not included in the writing may then be shown by parol.”
In 2009’s Hejl v. Hood, Hargett & Associates, Inc., the Court of Appeals held that $500 was adequate consideration for a noncompete agreement, though it noted that courts didn’t generally evaluate the adequacy of consideration in these types of agreements, but rather “consider[ed] the parties to be the judges of the adequacy of the consideration.”
Conceding that point, Little argued that since the agreement was not contracted “at arm’s length,” the court is authorized to determine whether the consideration is adequate.
The court, however, found that Little’s perceived threat to her employment wasn’t enough to overturn the trial court.
“While it may be true that Defendant felt pressure to sign the non-compete covenant in order to continue her employment,” Inman wrote, “this Court has enforced non-compete agreements under similar circumstances in the absence of fraud.”
Julian Wright, an employment attorney with Robinson, Bradshaw & Hinson in Charlotte, was not involved in this case but was familiar with the ruling. He said he was surprised that the appeals court affirmed the ruling given the consideration amount and pressure Little claimed to be under.
“But from an employer’s perspective, that’s what you want,” Wright said. “That is freedom of contract. If she didn’t want to sign it, she should’ve walked away and said, ‘Sorry, I’m not going to sign it,’ just walked away, and … she wouldn’t have been bound by the noncompete.”
Little’s attorney, Nelson Harris of Harris & Hilton in Raleigh, did not immediately return a message seeking comment.
An attorney for ESG, Jason Evans of McGuireWoods in Charlotte, was unable to comment by press time.
The 11-page decision is Employment Staffing Group, Inc. v. Little (Lawyers Weekly No. 15-07-0938). The full text of the opinion is available online at nclawyersweekly.com.
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