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Courts clarifying the status of non-compete agreements in Pennsylvania
agreements are not always enforceable. The courts continue to clarify when such agreements are valid.
Both employers and workers have a lot at stake in non-compete agreements. For employers, it is very important to protect confidential or otherwise valuable business information from unwarranted use by former employees or contractors. Yet workers also have important interests involved, particularly the right to earn a living without undue restraints from a previous employer.
Each state has its own laws on the status of agreements that seek to restrict the rights of former employees or contractors to compete with a previous employer. In this article, we will update you on a key case in which the Pennsylvania courts are clarifying the law on the enforceability of these agreements.
When are restraints on earning a living enforceable?
Historically, Pennsylvania law has not looked favorably on contracts or covenants that try to limit someone’s freedom to earn a living. This reflects a long-standing rule in the common law that such agreements are generally not enforceable. The rationale is that they are against the public policy of free competition and therefore to be considered void.
There are, however, two important exceptions to this rule in Pennsylvania. One is a non-compete agreement as part of the sale of a business. The other is when it involves an employment contract. In those two contexts, restrictions on a former worker may be valid if reasonable in geographical scope and time duration.
But what if the non-compete agreement was entered into after the employment relationship began? That is the issue addressed by the Pennsylvania Superior Court last year in a case called Socko v. Mid-Atlantic.
Socko v. Mid-Atlantic and the question of consideration
In the Socko case, a basement waterproofing business hired a salesman and subsequently required him to sign a non-competition agreement. The salesman did not receive any additional compensation or improvement in employment status by signing this agreement.
The agreement was for two years and extended to several enumerated states as well as any others where the waterproofing firm did business. The salesman left the business before the two years ended and was hired by a competitor. The competitor fired him when his previous employer threatened to sue to enforce the non-compete agreement.
The salesman brought suit against his former employer. He contended that the non-compete agreement was not enforceable because the employer had not provided him with any compensation or benefits (“consideration,” in legal terms) in exchange for it.
The Pennsylvania Superior Court agreed with the salesman. The applicable law was Pennsylvania’s version of the Uniform Written Obligations Act. The court found that under that law, a non-compete agreement involving a current employee requires an additional benefit to the employee in order to be enforceable.
Next stop: the Pennsylvania Supreme Court
There are many issues that remain to be fully resolved in the wake of the Superior Court’s decision in Socko v. Mid-Atlantic. For example, there may be questions about what constitutes the giving of new consideration by an employer in exchange for a worker’s signing a non-compete agreement. These are questions that are best addressed with counsel from an attorney knowledgeable about business and employment law.
There is also the question of whether the Pennsylvania Supreme Court will uphold the Superior Court’s decision. The Court has accepted the case for review and its decision will further clarify the law on the enforceability of non-compete agreements in Pennsylvania.
Keywords: Pennsylvania law, non-compete agreements, restraints, a living enforceable, long-standing rule, Socko v. Mid-Atlantic, geographical scope, time duration, Supreme Court.