Does a employment agreement/non-complete apply if you are laid off?

UPDATED: May 30, 2012

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Does a employment agreement/non-complete apply if you are laid off?

I signed an employment agreement that included a non-compete covenant. The company laid me off. I have been approached for employment by a competitor. Since I was laid off, does the agreement still apply?

Asked on May 30, 2012 under Employment Labor Law, Colorado


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Typically, no--non-competition agreements are not generally enforceable against employees who are terminated or laid off. The consideration for your promise to not compete--that is, the thing of value which the employer gave you in exchange for your promise--was your continued employment; once you are laid off, there is a failure of consideration (you are not getting what you are supposed to get in exchange for the promise to not compete) and that failure makes the agreement not enforceable against you. This said, you should review the specific language of the contract in detail--it is certainly possible to craft a non-competition agreement which would remain binding even following a layoff, such as if you received something instead of or in addition to your continued employment (such as severance); indeed, receipt of severance is a common consideration for a non-competition agreement, and the severance would allow the agreement to be enforced despite being terminated.

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