Thursday, September 24, 2009

Court reviews whether a non-compete contract is enforceable for an at-will employee who allegedy signed it under duress

CUMMINGS INCORPORATED v. TERRY J. DORGAN, JR. (Tenn. Ct. App. September 24, 2009)

This appeal involves an employment agreement and a non-compete covenant. The defendant sales representative was employed as a salesperson by the employer sign company. The parties executed an agreement setting out the structure of the employee's compensation, to be effective for three years. Prior to the expiration of the agreement, the plaintiff employer asked the employee to sign a new contract, changing his pay from straight commissions to salary plus commissions, as well as a separate two-year non-compete contract. The employee initially declined to sign the new contracts, but ultimately did so because he was told that he would be terminated if he refused. Over a year later, the employee quit to work for one of the plaintiff's competitors, and began soliciting his previous employer's largest account. The employer filed this lawsuit to enforce the non-compete contract. The employee asserted that the non-compete contract was unenforceable and filed a counterclaim, alleging breach of contract.

After a bench trial, the trial court enforced the non-compete contract, but held that the new compensation contract, executed on threat of termination, was void because it was signed under duress. The trial court awarded the employee damages. The employer now appeals, arguing that the new compensation contract was not signed under duress. The employee argues on appeal that the non-compete contract is unenforceable, because it was not supported by consideration and was also signed under duress.

We find that the defendant employee was an employee-at-will of the plaintiff company. On this basis, we reverse the trial court's finding that the new compensation contract was signed under duress, because threatening an at-will employee with termination does not constitute duress under the circumstances. We affirm the trial court's holding that the non-compete contract was enforceable.

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