Importance of consideration
Being considerate is certainly an important to any relationship, business or otherwise. When it comes to law, consideration takes on another meaning and plays a pivotal role in contracts. It’s one of the three elements necessary for successful contract formation in the United States, along with the offer and the acceptance.
Consideration is part of the glue that makes a contract binding. It can be the payment of money in exchange for goods or services, or the goods or services themselves in the case of a barter arrangement. Consideration can also be a promise to do, or not, do something. Essentially, consideration must be something of value, something you wouldn’t ordinarily have but for the agreement.
When mountain division manager Tracy Horner was asked by his employer Lucht’s Concrete Pumping to sign a noncompete agreement in 2003, two years after starting the job, he did so. The terms of the agreement required that Horner not compete against the company for a one year period if he ever left their employ.
Sure enough, about a year later he left and started working for a competitor with the week. Lucht’s claimed Horner’s customers in the mountain region pulled their business and followed Horner to his new job, causing them to close their business in that region. They were not amused and sued. They said Horner had breached the noncompete agreement, among other things.
The trial court ruled in favor of Horner saying there was inadequate consideration and the next highest court, the Colorado Court of Appeals, agreed. The trial court’s legal analysis was that continued at-will employment was insufficient consideration because the employee could still be discharged at a future date. There was nothing extraordinary about the “consideration” that the employee would not have received if hadn’t signed. Without receiving any real value, the agreement was unenforceable because one of the key elements required for successful contract formation was missing.
Also of interest is how the court took pains to distinguish this set of facts from prior case law that says continued at-will employment is sufficient consideration when employers revise company employment policies and procedures. It did so by noting how changes in employment policies and procedures typically involve the grant of benefits to employees instead of restrictions, how such policy changes affect an entire group of employees instead of singling out just one, and how challenges to policy changes typically involve an employee trying to enforce an employer’s promise instead of the other way around.
Unless the case is reversed by the Colorado Supreme Court, the Lucht’s Concrete Pumping case remains a cautionary tale about what can happen when the element of consideration is taken lightly. Regardless of whether the case is not reversed, it also illustrates how the most economical (i.e. cheapest) solution in the near term is not always the least expensive in the long term.
