Restrictive Covenant & Non-Solicitation Agreement May Be Unreasonable if Extended to Employee’s Prior Customers

Pennsylvania courts continue to carefully scrutinize restrictive covenants. In a recent non-precedential decision, First National Bank of Pennsylvania v. Nagle, Superior Court of Pa. (No. 441 WDA 2015) (April 8, 2016), the Superior Court reversed and remanded a trial court order enjoining a former employee from dealing with customers that the employee had acquired prior to the commencement of his employment.

In Nagle, the employer, a bank that provides consumer banking services and commercial loans, hired the employee as a commercial lender at which time the employee signed a Non-Solicitation Agreement that provided: “. . . during the one-year period immediately following termination of your employment for any reason, including resignation by you or an involuntary termination of your employment by the company, you will not engage in any acts which would be considered improper solicitation under this letter agreement. For the purposes of this letter agreement, improper solicitation includes, but is not limited to: directly or indirectly soliciting or selling to any customer of the company or its affiliates any product or service offered by the company or its affiliates; employing or assisting in employing any present employee of the company or its affiliates; and directly or indirectly requesting or advising any customer or supplier of the company to withhold, curtail or cancel business with the company or its affiliates. A customer is any person or entity with whom you transacted business or became aware of during your employment with the company.”

The employee was terminated for alleged improper conduct and the employer filed a Complaint and Petition for Preliminary Injunction alleging that the employee violated the Non-Solicitation Agreement by improperly contacting and soliciting customers after his termination. The employee admitted that he had contacted or was contacted by the customers at issue; however, the employee maintained that the customers were his own preexisting customers and as a consequence, no violation of the Non-Solicitation Agreement had occurred. The trial court entered an Order granting the employer’s Motion for Judgment on the Pleadings and enjoined the employee from continuing to violate the terms of the Non-Solicitation Agreement by contacting the customers. The employee filed an appeal to the Superior Court of Pennsylvania arguing that the trial court improperly enjoined the employee from engaging in business with customers whom he had developed prior to his employment with the employer.

In Nagle, the court noted that a Pennsylvania Supreme Court decision, Hess v. Gebhard & Co., stands for the proposition that an employer does not have a protectable business interest in pre-existing customers. In addition, Pennsylvania courts have historically viewed such covenants as contracts in restraint of trade that prevent a former employee from earning a livelihood, and, therefore, have disfavored such provisions in the law and that covenants not to compete are strictly construed against the employer. However, the Pennsylvania Supreme Court has also recognized an employer’s right to protect, by a covenant not to compete, its interest in customer relationships acquired through the efforts of its employees, thus, while Pennsylvania law looks with disfavor upon restrictive covenants, covenants may be enforced if (1) they are incident to an employment relationship between the parties; (2) they are supported by adequate consideration; (3) the restrictions imposed by the covenant are reasonably necessary for the protection of legitimate interests of the employer; and (4) the restrictions imposed are reasonably limited in duration and geographic extent. The court found that the issue is whether barring the employee from contacting his preexisting customers is reasonably necessary for the protection of the employer. The court noted that keeping in mind that Pennsylvania law disfavors restrictive covenants, it would be unreasonable to extend the Non-Solicitation Agreement to include personal customers of the employee who came to the customers of the employer solely to avail themselves of the employee’s services and only as a result of his own independent recruitment efforts which were neither subsidized nor financially supported by the employer. As a consequence, the Superior Court reversed the trial court’s Order and remanded the case for further proceedings.

Abramson Employment law represents clients who have restrictive covenants and non-compete agreements. For more information on restrictive covenants, non-compete agreements and Abramson Employment Law, see http://www.job-discrimination.com/lawyer-attorney-2117941.html

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Filed under Breach of Contract, Employment Law, Non-Compete Agreements, Restrictive Covenant

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