Tag Archives: Non-Compete Agreements

Preliminary Injunction to Enforce Non-Solicitation Agreement Against Pennsylvania Employee Denied

Today, rather than directly hire employees, many Pennsylvania companies and some government entities enter into contracts with staffing companies that supply their employees to perform work for these companies. Even more complicated are situations where one staffing company hires another company to provide employees. These arrangements are often found in the information technology industry. While such arrangements serve to reduce the number of employees who work for the contracting entities and limit exposure for certain potential liabilities that may arise from the employer-employee relationship, these relationships may provide unexpected barriers to the enforcement of restrictive covenants such as non-solicitation agreements.

There are several types of restrictive covenants that Pennsylvania employers seek from employees. A non-compete agreement generally requires that an employee agree not to work in the same industry after leaving employment for a period of time after the employment relationship ends. Another form of a restrictive covenant is a non-solicitation agreement that generally prohibits an employee from seeking business from customers of an employer for a period after the employment relationship ends. In Computer Aid v. Ferree (Pa. Super. Ct. no. 525 MDA 2016) (February 21, 2017) (non-precedential), the court considered the enforcement of a “non-solicitation” agreement required by a staffing company. In addition, the Superior Court of Pennsylvania’s decision addressed another barrier that may arise when an employer seeks to enforce a restrictive covenant, the requirement that an employer must demonstrate that it cannot be made whole by money damages.

Computer Aid, the original managing staffing company for PennDot (the Pennsylvania Department of Transportation), had arranged for the hiring of individuals submitted by numerous vendors that supplied employees to fill PennDot’s needs. Computer Aid lost the contract to be the managing staffing provider but it remained a vendor that provided employees to work for PennDot. After it lost the managing staffing provider position, an individual (hereinafter, the employee), who was originally placed through Computer Aid to work at PennDot who had signed a non-solicitation clause, began working at PennDot again as an employee placed through another staffing company. Computer Aid filed an emergency motion for a preliminary injunction, alleging that the employee violated a non-solicitation agreement by effectively taking Computer Aid’s customer, PennDot. Computer Aid sought an injunction to prevent the employee from further interactions and business with PennDot based upon language in the non-solicitation agreement that prohibited the employee from taking its customers.

In Pennsylvania, a trial court has broad discretion to grant or deny a preliminary injunction against an employee. In order to obtain a preliminary injunction against a Pennsylvania employee, an employer must establish that (1) injunctive relief is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by money damages; (2) greater injury will occur to the employer from refusing to grant the injunction rather than from granting it; (3) the injunction will restore the parties to their status quo as it existed before the alleged wrongful conduct; (4) the employer is likely to prevail on the merits; (5) the injunction is reasonably suited to abate the offending activity; and (6) the public interest will not be harmed if the injunction is granted.

In order for an employee to be granted a preliminary injunction it must be able to establish that money damages will not make it whole. Computer Aid argued that the trial court erroneously concluded that it could be made whole by money damages by failing to recognize a loss of goodwill, the loss of a customer, and the loss of income when the employee took a position at PennDot through another staffing company. In affirming the trial court, the Superior Court of Pennsylvania noted that a loss of income is in fact a loss of money that can be remedied by monetary damages. While Computer Aid also claimed that the employee created a loss of a customer, the court found that this argument was not convincing as it remained a PennDot vendor and continued to place employees. Lastly, while loss of business goodwill is a non-monetary consideration, the court found that there was no evidence that Computer Aid lost any business goodwill since it continued to be a PennDot vendor providing employees and there was no evidence presented to show that PennDot was in any way dissatisfied with its work. Thus, the court found that Computer Aid failed to establish that it lost a customer but rather just lost one “slot” at PennDot after it had already lost its position as prime contractor and while there may or may not have been a violation of the restrictive covenant, the employee’s actions associating himself with a new vendor did not cause irreparable harm as damages could be calculated based on the amount of money Computer Aid would have received absent the alleged violation. Consequently, the Superior Court found that there were reasonable grounds for the denial of the preliminary injunction and there was no abuse of discretion or misapplication of law.

Andrew Abramson regularly consults with Pennsylvania employees who have issues surrounding non-compete agreements, non-solicitation agreements and restrictive covenants, and when the needs arise Abramson Employment Law represents employees in federal and state courts in Philadelphia, Montgomery County, Pennsylvania and surrounding areas. For more information see https://www.job-discrimination.com/noncompete-agreements.html

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Preliminary Injunction to Enforce Pennsylvania Noncompete Agreement Denied

In the past year we have seen a substantial increase in the number of Pennsylvania employees who are seeking our representation as a Pennsylvania noncompete agreement attorney. It is critical to understand that the terms, noncompete (or restrictive covenant), do not have a uniform meaning and the enforceability of an employee’s noncompete agreement will be only be able to be determined based on an analysis of the actual words in the employee’s noncompete agreement, as well as key facts pertaining to the employee’s job and the employer’s business operations.

The need to focus on each word in a noncompete agreement is best illustrated by a case recently decided in the United States Court for the Eastern District of Pennsylvania, Almac Clinical Services v. Aeri Park, E. D. Pa. no. 16-4896 (O’Neill, J.) (October 11, 2016), where the court denied the employer’s motion for a preliminary injunction

Restrictive covenants are disfavored under Pennsylvania law, are strictly construed and must be carefully reviewed to ensure their reasonableness.  In interpreting a noncompete agreement, which is a contract, Pennsylvania courts apply the plain meaning rule of the interpretation of contracts, which assumes that the intent of the parties to an instrument is embodied in the writing itself, and when the words are clear and unambiguous, the intent is to be discovered only from the express language of the agreement. Contracts must be read to avoid ambiguities if possible, and specific provisions ordinarily control more general provisions.

For an employer to obtain a preliminary injunction in Pennsylvania, a court must assess the employer’s reasonable probability of eventual success in the litigation, whether the employer will be irreparably injured if the injunction is not granted, the possibility of harm to other interested persons from the grant or denial of the injunction, and the public interest.  If the employer fails to show either a likelihood of success, or a fails to demonstrate irreparable injury, a court must deny the preliminary injunction.

In the Almac litigation, two entities, Almac Sciences and Almac Clinical, filed a motion for a preliminary injunction against a former employee, Dr. Aeri Park and her new employer, Triclinic Labs, seeking an injunction to prevent the employee from working for her new employer for six months based on an employment agreement that contained “post termination covenants” regarding non-interference, non-solicitation and noncompetition. The employer’s lawsuit set forth causes of action for breach of post-employment covenants under Pennsylvania law; violations of the Pennsylvania Uniform Trade Secret Act; and tortious interference with existing and prospective contractual relations.

At the onset of employment, the employee signed both an offer letter and an employment agreement which contained several post-termination restrictive covenants and provides that for a period of six months after termination, the employee shall not engage in any business activity that is competitive in any way with the business of the Company in the United States, Europe, and any foreign country in which the Company does business or is planning to do business.

The employee, Dr. Park, an expert in solid-state chemistry  was involved in the early solid-state research and invented some of the crystalline forms for which solid-state testing is used. When hired, Dr. Park was tasked with launching a lab for Almac Sciences that would perform both solid-state testing and analytical testing. Ultimately, a corporate decision was made that there was insufficient demand for solid-state testing in the United States and the corporation declined to pursue solid-state testing, thus, Almac Sciences performs only analytical testing.  Dr. Park spent the last year of employment working for the Almac corporation in the United Kingdom but instead of managing the solid-state lab, she performed sales duties.  Dr. Park resigned and accepted employment with Triclinic Labs, a small contract research organization specializing in solid-state chemical and solid-state analytical work for pharmaceutical and other clients around the world. Triclinic was aware of the non-compete obligations and determined that during her first six months of employment, Dr. Park would focus on “inward-facing activities”, involving no client contact, no research and no consulting, other than the one project for which she had obtained a waiver.

In applying Pennsylvania contract law, where a contract is clear and unambiguous, a court may look only to the express language of the agreement to ascertain the parties’ intent. The court found that the non-compete provision at issue was unambiguous and therefore the express language of the agreement controls. Thus, the court found that the noncompete agreement specifically provides that it is only applicable to Almac Clinical Services and not any other entity. The court then considered the new employer’s business, a contract research organization specializing in solid-state chemical and solid-state analytical work; where the employee was only performing “inward-facing activities.” To the contrary, the former employer, Almac Clinical, engages in the packaging, labeling and distribution of clinical trial packs, and offers associated analytical support to the manufacturer of those products, services not offered by the new employer, and during the course of her tenure with Almac, Dr. Park did not do any work related to clinical packaging. Thus, the court found that the employer did not establish a likelihood of success on the merits of the breach of contract claim as the employee was not engaged in activities competitive with her former employer.

The Pennsylvania Uniform Trade Secrets Act creates a cause of action for misappropriation of trade secrets and the unjust enrichment caused by such misappropriation. To establish misappropriation of a trade secret by a Pennsylvania employee, an employer must show (1) the existence of a trade secret; (2) communication of the trade secret by a Pennsylvania employee pursuant to a confidential relationship; (3) use of the trade secret in violation of that confidence; and (4) harm to the employer.

In Almac, the employer argued that the employee had access to substantial amounts of highly confidential information, and that there was a sufficient likelihood or substantial threat of disclosure of a trade secret due to the competitive nature of the new employer’s business. However, the court found that there was no evidence that the employee disclosed any confidential information to the new employer; the employee turned over all equipment, documents and data when she resigned, and the new employer set up ground rules to ensure that the new employee would not violate her obligations during her first six months of employment. Further, the court found that the record is devoid of evidence that the employer suffered damages. Thus, the court found that employer did not establish a likelihood of success on the merits of the trade secrets claim.

To establish a Pennsylvania employee’s tortious interference with an existing or prospective contract under Pennsylvania law, an employer must prove  (1) the existence of a contractual relationship or prospective contractual relationship between the employer and another party; (2) an intent on the part of the employee or new employer to harm the former employer by interfering with that contractual relationship or preventing the relationship from occurring; (3) the absence of privilege or justification; and (4) actual damage.

In Almac, the court found that the employer failed to prove any elements of a tortious interference with contractual relations claim, and to the contrary, the actions of the employee and new employer show concerted efforts to ensure that they neither breached the non-compete nor improperly interfered with the former employer’s contractual relationships with its customers.

Abramson Employment law represents clients who have restrictive covenants and noncompete 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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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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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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Non-Compete Agreements: Pennsylvania Will Not Enforce Restrictive Covenants Entered Into After Commencement of Employment Unless Employer Offers New Valuable Consideration Beyond Continuing Employment

Today, in Socko v. Mid-Atlantic Systems of CPA, Inc., No. 142 MAP 2014, the Supreme Court of Pennsylvania reaffirmed that the enforcement of an employment agreement containing a restrictive covenant not to compete, entered into after the commencement of employment, may be successfully challenged as unenforceable by an employee for a lack of consideration. Such an agreement is unenforceable even where the agreement, by its express terms, states that the parties “intend to be legally bound,” which language implicates the Uniform Written Obligations Act (“UWOA”).

In Socko, while already employed, the employee signed a third, more restrictive Non-Competition Agreement which, by its terms, superseded all prior agreements. Pursuant to the agreement, the employee was not permitted to compete for two years after the termination of his employment in any of the following locations: Connecticut, the District of Columbia, Delaware, Maryland, New Jersey, Pennsylvania, New York, Virginia, West Virginia, or any other jurisdiction in which the employer did business. The Agreement also expressly provided for the application of Pennsylvania law, and stated that the parties intended to be “legally bound.” In Socko, the employee filed a motion for partial summary judgment, asserting that the non-competition clause in the agreement was unenforceable, as it was not supported by sufficient consideration. It was not disputed that the agreement was signed during the course of the employee’s employment and the employee did not receive any benefit or any change in his existing employment status in exchange for signing the new agreement.

The Supreme Court of Pennsylvania noted that while a covenant not to compete may be desirable and justified in some circumstances on the part of an employer, 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. While generally disfavored, Pennsylvania law, however, has recognized the validity and enforceability of covenants not to compete in an employment agreement, assuming adherence to certain requirements. Currently in Pennsylvania, restrictive covenants are enforceable only if they are: (1) ancillary to an employment relationship between an employee and an employer; (2) supported by adequate consideration; (3) the restrictions are reasonably limited in duration and geographic extent; and (4) the restrictions are designed to protect the legitimate interests of the employer. The Court noted as with other contracts, for an employment agreement containing a restrictive covenant to be enforced, consideration is crucial, whether the covenant is entered into prior to, during, or after employment ends. Thus, to be valid, a covenant not to compete must be consummated with the exchange of consideration.

If a noncompetition clause is executed at the inception of the employment, the consideration to support the covenant may be the award of the job itself. A restrictive covenant is not required to be included in the initial employment contract to be valid. However, when a non-competition clause is required after an employee has commenced employment, it is enforceable only if the employee receives new and valuable consideration that corresponds with a benefit or a favorable change in employment status. In Pennsylvania sufficient new and valuable consideration has been found to include a promotion, a change from part-time to full-time employment, a compensation package of bonuses, insurance benefits or severance benefits.
Socko confirms that without new and valuable consideration, a restrictive covenant is unenforceable. More specifically, the continuation of the employment relationship at the time an employer and employee enter into the restrictive covenant is insufficient by itself to serve as consideration for the new covenant, despite the fact that there may be an at-will relationship terminable by either the employer or the employee. As a consequence, in Socko the Court held that in “light of the clear and unambiguous language of the UWOA, and consistent with our prior case law, we reject Mid-Atlantic’s (the employer’s) view and conclude that a contract containing a written express statement of intent to be “legally bound” does not supply the necessary consideration to support the enforceability of an agreement.

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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Preliminary Injunction Denied Where Employee’s Subsequent Employment Contracts Fail to Include Restrictive Covenant

In Pennsylvania, restrictive covenants are enforceable if they are incident to an employment relationship between the parties; the restrictions imposed by the covenant are reasonably necessary for the protection of the employer; and the restrictions imposed are reasonably limited in duration and geographic extent. Restrictive covenants are not favored in Pennsylvania and are viewed as a trade restraint that prevents a former employee from earning a living.

In order for a restrictive covenant to be enforceable, there must be sufficient consideration (something of value offered to the employee). The commencement of employment is sufficient consideration for a covenant not to compete and an employee’s promotion to a new position within the company also constitutes sufficient consideration, however, the covenant must be executed contemporaneously with the exchange of consideration. In construing a restrictive covenant, when writing is clear and unequivocal, its meaning must be determined by its contents alone. Courts will no re-write restrictive covenants or engage in interpretations which conflict with the accepted and plain meaning of the language used.

Assignability of a restrictive covenant can also be an issue. Strong public policy considerations underlie the conclusion that restrictive covenants are not assignable. Given that restrictive covenants have been held to impose a restraint on an employee’s right to earn a livelihood, they are construed narrowly; and, absent an explicit assignability provision, courts are hesitant to read one into a contract. Courts have also held that the employer, as drafter of the employment contract, is already in the best position to include an assignment clause and a successor employer is free to negotiate new employment contracts with an employee, or secure the employee’s consent to have the prior employment contract remain in effect.

In WMI Group, Inc. v. Fox, 2015 Pa. Super 25 (Feb. 6, 2015), the Court affirmed the trial court’s order finding that a former employer did not meet its burden of showing an enforceable restrictive convent and also did not demonstrate the existence of a trade secret. The Court held that while an initial employment agreement included a non-compete clause, when the employee was promoted and entered into two subsequent contracts with a related but different entity, each of which lacked a non-compete clause, the earlier non-compete was unenforceable.

In WMI, the court also considered the former employer’s assertion that trade secrets were taken from the former employer. Pennsylvania cases have recognized that trade secrets of an employer, customer goodwill and specialized training and skills acquired from the employer are all legitimate interests protectable through a general restrictive covenant. However, a court must examine and balance the employer’s legitimate business interest, the individual’s right to work, the public’s right to unrestrained competition, and the right to contract in determining whether to enforce a restrictive covenant. To obtain injunctive relief, a party must establish that the information at issue is a “trade secret,” which requires proof of a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. If a competitor could obtain the information by legitimate means, it will not be given injunctive protection as a trade secret.

In WMI, the former employer contended its pricing method is a trade secret and its network of customer contacts, information, and relationships are also trade secrets; the court denied each argument and held that the former employer was not entitled to any relief. In so doing the court found that currency hedging is common knowledge and can be obtained via legitimate means, therefore injunctive relief is unavailable.

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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Non-Compete Agreements: Non-Compete Invalid Due to Lack of Consideration

Employment law attorneys are frequently retained to advise employees on the enforceability of non-compete agreements / restrictive covenants under Pennsylvania law. In Socko v. Mid-Atlantic Systems of CPA, Inc. 2014 Pa. Super. LEXIS 702 (May 13, 2014), the Superior Court of Pennsylvania recently set forth a thorough analysis of the current state of Pennsylvania non-compete law.

Restrictive covenants not to compete have always been disfavored in Pennsylvania because they have been historically viewed as a restraint on trade that prevents a former employee from earning a living. This follows the principle set forth by the Pennsylvania Supreme Court that contracts in restraint of trade made independently of a sale of a business or contract of employment are void as against public policy regardless of the valuableness of the consideration exchanged therein. Restrictive covenants entered into at the sale of business or a contract to commence employment where none existed previously have been found to constitute consideration supporting that covenant. However, when a restrictive covenant in an employment contract is executed after the beginning of employment relationship, courts have found the agreements unenforceable for lack of consideration.

Forty years ago in Maintenance Specialties, Inc. v. Gottus, 455 Pa. 327, 314 A.2d 279 (Pa. 1974), the Pennsylvania Supreme Court held that restrictive covenants in restraint of trade are enforceable only if the employer satisfies three requirements: (1) the covenant must relate to (i.e., be ancillary to) either a contract for the sale of goodwill or other subject property or to a contract of employment; (2) the covenant must be supported by adequate consideration; and (3) the application of the covenant must be reasonably limited in both time and territory. Each of these requirements must exist before a restrictive covenant is enforceable.

As to the nature of the consideration which is required to support a covenant not to compete, Pennsylvania law requires the presence of “valuable consideration.” Two types of consideration support a restrictive covenant in an employment contract. When the restrictive covenant is contained in the initial contract of employment, consideration for the restrictive covenant is the job itself. When the restrictive covenant is added to an existing employment relationship, however, it is only enforceable when the employee receives a corresponding benefit or change in status. An employee’s continued employment is not sufficient consideration for a covenant not to compete which the employee signed after the inception of his employment, where the employer makes no promise of continued employment for a definite term.

In George W. Kistler, Inc. v. O’Brien, 464 Pa. 475, 347 A.2d 311 (Pa. 1975), the Pennsylvania Supreme Court again found unenforceable a restrictive covenant set forth in an employment contract executed after the employee had previously entered into a binding oral employment agreement and commenced work, without any corresponding benefit or change in job status. In Kistler, the Supreme Court excluded three forms of consideration it found inadequate to support a covenant not to compete. First, the Court held that continued employment does not constitute sufficient consideration even if the employment relationship was terminable at the will of either party. Second, the execution of the employment agreement under seal did not constitute valuable consideration to support the restrictive covenant. Lastly, the recitation of nominal consideration ($1.00) was inadequate consideration for the restrictive covenant. Thus, when an employee enters into an employment contract containing a covenant not to compete subsequent to employment, the covenant must be supported by new consideration which could be in the form of a corresponding benefit to the employee or a beneficial change in employment status.

In Socko, the court held the restrictive covenant was not enforceable because the employer conceded that the non-competition restrictive covenant in an employment agreement was entered into after the commencement of employment, thus, there was a lack of consideration and the employer provided the employee with no benefit or change in job status at the time of execution. The court flatly rejected the employer’s contention that the insertion of language in the agreement which states that the mere insertion of language that the parties “intend to be legally bound” by itself is adequate consideration under the Uniformed Written Obligations Act. Thus, in Socko, the Superior Court of Pennsylvania concluded that the restrictive covenant was unenforceable for lack of valuable consideration.

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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