Tag Archives: Non-Solicitation

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 no. 525 MDA 2016) (February 21, 2017) (non-precedential), the court considered the enforcement of a “non-solicitation” agreement required by a staffing company.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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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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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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Restrictive Covenants / Non-Compete Agreements: Court Declines to Enter Preliminary Injunction – No Irreparable Harm Demonstrated

In De Lage Landen v. Thomasian, 2013 U.S. Dist. LEXIS 62639 (E. D. Pa. May 1, 2013) (Buckwalter, S. J.), the Defendant employee entered into an Employee Agreement with Restrictive Covenants and voluntarily terminated his employment with his former employer, one month after he had accepted an offer to work for a new employer, CoActiv. The employee admittedly breached his Employee Agreement by giving his former employer’s laptop and security credentials to his new employer which he subsequently returned. The Court declined to enter a preliminary injunction, finding that the plaintiff failed to prove irreparable harm (the difficulty in showing that damages can only be adequately compensated by granting an injunction”).

While the court found that the defendant breached a non-solicitation agreement by encouraging one of his former employer’s employees to work for CoActiv, the new employer; Coactive does not compete with the former employer on a national basis and the two companies “are not presently in the same ballpark.” In addition, the Defendant employee’s office was 40 miles from any of his former employer’s regional offices and the employee has not solicited former customers.

Even though the court found that the employee violated the Agreement and acceded to the terms of the Agreement including a provision for injunctive relief, the court declined to enter an injunction because there was no irreparable harm which “compensation in money alone cannot atone.” Ultimately, the court reasoned that “(th)e problem with plaintiff’s case is that it has offered nothing concrete to show what effect defendant’s leaving has had to date.”

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 Covenants: Non-Solicitation Clause is Found Unenforceable Against Terminated Employee

In a recent New York federal court case interpreting Pennsylvania law, the court refused to enforce a non-solicitation clause against an employee who was terminated. In Fenner Precision Inc. v. Mearthane Products Corp. 2013 U.S. Dist. LEXIS 15588 (W. D. N. Y. February 5, 2013), the former employee defendant was a salesman in the field of elastomeric precision products for more than 20 years. His original employer was acquired by a new company and he was required to sign a non-compete agreement with a Pennsylvania choice-of-law provision, containing various restrictive covenants, including confidentiality, non-compete, and non-solicitation provisions. The employee was employed by the new employer for 4 years and then was terminated at age 58 without any reason being provided. Thereafter, the employee accepted employment with a competitor of his former employer. The former employer filed a Motion for Preliminary Injunction, not attempting to enforce the non-compete covenant, but instead only seeking to enforce the confidentiality and non-solicitation provisions.

In Fenner Precision, the Court reviewed Pennsylvania restrictive covenant law which requires that covenants be reasonable and places the burden of proving that they are not reasonable on the party opposing the covenant but noted that post-employment restrictive covenants are subject to a more stringent test of reasonableness than covenants ancillary to the sale of a business. See, John G. Bryant Co., Inc. v. Sling Testing & Repair, Inc., 471 Pa. 1, 12, 369 A.2d 1164, 1169 (Pa. 1977)

While the Court noted that Pennsylvania law has not expressly resolved whether pure non-solicitation clauses, which do not otherwise prohibit former employees from engaging in a particular occupation or field, should be subject to the test of reasonableness, the court relied upon a Pennsylvania Superior Court decision in Missett v. Hub Intern. Pennsylvania, LLC, 6 A.3d 530, 538-540 (Pa.Super. 2010), finding that a non-solicitation clause must be reasonable to be enforced. In Fenner Precision, the Court relied upon Pennsylvania cases clearly expressing a heightened scrutiny for employees who are terminated by their employers, on the theory that the employer views such employees as “worthless” and concluded that the Defendant employee is likely to prevail in demonstrating that enforcement of the non-solicitation clause against him would not be reasonable and denied the Motion for a Preliminary Injunction.

As we have commented before, there is a clear trend in Pennsylvania law not to enforce restrictive covenants. While they is an extremely positive development for all employees, the benefit of the trend is largely skewed only to high wage earners, due to the high initial costs associated with successfully litigating preliminary injunctions and restrictive covenants.

For more information on non-compete agreements, restrictive covenants, non-solicitation clauses and Abramson Employment Law see http://www.job-discrimination.com/lawyer-attorney-1134689.html

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