New Washington Court Case Supports Enforcement of Shareholder Noncompete Agreement

In a case that supports the enforcement of a shareholder noncompete agreement, the Washington Court of Appeals, Division I, found that a veterinarian who signed various employment agreements that contained covenants not to compete was bound by the non-compete agreements even when he signed the agreements as a shareholder (rather than as an employee). The court noted that noncompete agreements are “non uncommon, especially in small business entities where the owners are professionals who are also employees.” The court held that no new consideration would be required where all shareholders of a corporation mutually agree to modify a noncompete agreement.

In arguing his appeal, the veterinarian relied upon arguments that prior employment law decisions recognize that where a noncompete agreement is entered into or modified after employment starts, continued employment by itself does not provide adequate consideration to enforce the agreement (in other words, these cases found that “fresh” consideration would be required for the entering into or modification of an employment agreement after employment starts).

The Court of Appeals upheld an arbitrator’s award finding that the noncompete provision was enforceable and the decision to award the veterinarian clinic liquidated damages of $300,000.

Due to the significant damages that are involved, business owners who are asked to sign a noncompete agreement in connection with their business should first consult an experienced attorney prior to signing such an agreement.

Michael Salewski, D.V.M. v. Pilchuck Veterinary Hospital, Inc., P.S., Division I, No. 72314-6-I