Court Refuses to Enforce NonCompete Agreement against Terminated Employee

In applying Pennsylvania case law, Courts are reluctant to enforce noncompete agreements against an employee who was terminated by an employer. In Lehigh Anesthesia Association v. Mellon, No. 1570 EDPA 2015 (Pa Super) (April 26, 2016), the Superior Court affirmed a trial court ruling that found that a noncompete agreement was unenforceable against a certified nurse anesthetist who worked for the employer for 11 years and was terminated for alleged poor performance. The employee signed a written employment agreement with a restrictive covenant which provided that in the event of the termination of employment for any reason, the employee could not enter into a business or practice competitive with that of the employer for two years if the employer provided any billable services to a client within 4 years of the date preceding the termination of the employee’s employment. The agreement provided that if the employee violated the restrictive covenant, the employee was liable for damages outlined in the contract.

After the employee in Lehigh Anesthesia was terminated, the employee took a position with another employer which happened to provide services to a client of the former employer. The court found that the reach of the covenant terms was overly broader than necessary to protect the former employer’s business interests and it unfairly restricted the employee from practicing the employee’s trade or skill, or from utilizing experience in the particular type of work with which the employee is familiar.

For a covenant not to compete to be enforceable in Pennsylvania, it must be: (1) ancillary to the employment relationship; (2) reasonably necessary for the protection of the employer; and (3) reasonable in duration and geographic reach. Post-employment restrictive covenants are subject to a stringent test of reasonableness. A post- employment covenant that merely seeks to eliminate competition in order to give the employer an economic advantage is generally not enforceable. The presence of a legitimate, protectable business interest of the employer is a threshold requirement for an enforceable non-competition covenant. If the threshold requirement of a protectable business interest is met, the next step in the analysis of a non-competition covenant is to apply a balancing test. First, the court balances the employer’s protectable business interest against the employee’s interest in earning a living. Then, the court balances the employer and employee interests with the interests of the public to weigh the competing interests of the employer and employee. A court must conduct an examination of reasonableness and the terms of the covenant must be reasonably limited in terms of the temporal and geographical restrictions imposed on the former employee.

Pennsylvania courts view the situation where an employee is terminated with great scrutiny. Where an employee is terminated by an employer on the grounds that the employee has failed to promote the employer’s legitimate business interests, it clearly suggests an implicit decisionon the part of the employer that its business interests are best promoted without the employee in its service and the employer who fires an employee is deemed to view the employee as worthless. As a consequence, once such a determination is made by the employer, the employer’s need to protect itself from the former employee is diminished by the fact that the employee’s worth was insignificant. In Lehigh Anesthesia the court noted that the restrictive covenant was aimed at restraining the employee from the exercise of his profession within certain geographic and temporal bounds. Relying on the Pennsylvania Superior Court’s decision in Insulation Corp. of Am. v. Brobston, 667 W.D. 729 (Pa. Super. Ct. 1995), in Lehigh Anesthesia, the court noted that an examination of the restrictive covenant at issue reveals that the terms are both ambiguous and overly broad or unreasonable as the covenant specifically prohibits the employee from rendering anesthesia services to any current or former clients dating back four years, and also includes businesses which conduct business with current and prior clients

In Lehigh Anesthesia, the court cited a frequent quote from Brobston, “The salesman discharged for poor sales performance cannot reasonably be perceived to pose the same competitive threat to his employer’s business interests as the salesman whose performance is not questioned, but who voluntarily resigns to join another business in direct competition with the employer.”

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, Non-Compete Agreements, Restrictive Covenant

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