Campbell Soup Company v. Desatnick

58 F. Supp.2d 477 (D. N.J. 1999)
  • Opinion Date: July 8, 1999

NON-COMPETITION—Because an employer has the right to discharge an at-will employee without cause, its forbearance from exercise of that right is a legal detriment constituting adequate consideration for a non-compete agreement.

A company’s Vice President of Global Advertising and Promotion executed both a confidentiality agreement and a non-competition agreement. The original confidentiality agreement was signed at the time of his employment and he subsequently signed another one. At the time of his hiring, he refused to sign a non-competition agreement, but several years later he was told that in order to have access to sensitive company information he would have to sign such an agreement because the company did not want an employee having such access to leave and join a competitor. Initially, he objected to signing that non-competition agreement but, although he was angry and unhappy, he ultimately signed it. One of the benefits of signing the agreement was that he became eligible for a particular stock option program. A year later, without protest, he signed a replacement non-competition agreement. A time came when he wanted to leave his employment to work for another company and asked the Court to grant a preliminary injunction enjoining his employer from enforcing the later non-competition agreement. Preliminary, the Court found that the agreement met the New Jersey standards for an enforceable non-competition agreement. It protected a legitimate need of the former employer, and, on balance, it did not impermissibly interfere with the employee’s ability to earn a livelihood. In addition, the Court concluded that the proposed new employer was indeed a competitor. The employee, however, contended that his non-competition agreement was unenforceable because his former employer had breached an oral contract of employment by requiring him to execute the non-competition agreement and did not provide him with any additional valuable consideration in exchange for his promise not to compete. The oral employment agreement that the employee was referring to was the understanding reached at the outset of his employment when he refused to sign the original non-competition agreement. The Court was not sympathetic to the employee’s contentions. “Under general contract law, New Jersey has acknowledged for over three-quarters of a century that an act or promise of forbearance may be sufficient consideration to support an alleged oral contract of employment.” While an employer’s assurances can create a binding contract between an employer and an employee under certain circumstances, the Court found that the employee did not meet his burden of establishing the existence of such a contract. While the employee had a personal hope or expectation that he would receive a significant number of stock options each year of his employment, the company did not promise a grant of a guaranteed number of stock options each year. Moreover, the terms of the company’s original offer of employment were embodied in an offer letter, not in the earlier conversations with the employee prior to his hiring. The offer letter made clear that the stock option awards were discretionary. Even assuming that the offer letter entitled the employee to continued eligibility for stock options, once the employer changed the term of the employee’s employment by requiring him to execute the non-competition agreement and the employee signed in order to remain employed, he effectively assented to the modification and commenced employment under the new terms. In addition, because the employer had the right to discharge the employee without cause, its forbearance from that right was a legal detriment constituting adequate consideration for the restrictive covenant. What was more, the employee’s continued employment as an at-will employee upon his execution of the non-competition agreement could easily have constituted sufficient consideration to support the validity and enforceability of the restrictive covenant under New Jersey law. The employee also contended that the non-competition agreement was void because it was signed under economic duress. Under New Jersey law, however, “[a] party alleging economic distress must show that he has been the victim of a wrongful or illegal act or threat” that “[d]eprived the victim of his unfettered will.” In determining whether economic distress has been shown in a particular case, “the ‘decisive factor’ is the wrongfulness of the pressure exerted.” Here, the employee did not show that there was anything “wrongful” about his employer’s demand that he execute the non-competition agreement as a condition of continued eligibility for stock options. Further, the Court determined that the employer provided adequate consideration for the employee’s promise not to compete. For those reasons, the Court denied the employee’s motion for a preliminary injunction.