Answers To Common Questions About Non-Compete Agreements
Non-compete agreements are sometimes included in hiring packages as part of the employment contract. Their purpose is to restrict an employee from working for a competitor in the original employer’s region and providing unfair advantage to the new company because of the knowledge they gained from the previous employer.
Laputka, Bayless, Ecker & Cohn, PC’s employment law attorney represents both employers and employees on matters related to non-compete agreements, which are also known within the state as “restrictive covenants.” Because so much misunderstanding surrounds how these agreements work and their enforceability, he has drafted answers to several of the most commonly asked questions we hear in our offices.
What are non-compete agreements and how do they work in Pennsylvania?
Non-compete agreements are designed to protect business owners/employers from suffering unfair losses after the departure of an employee. Their purpose is to prevent that employee from directly competing (either as a new business owner or working for an existing competitor) with the company within the geographic areas in which it does business.
Pennsylvania courts have recognized the right of employers to protect themselves in this way, but they also recognize that employees have a right to pursue a job outside of their current company. If a non-compete agreement is too broadly drawn, it is unlikely to be upheld in court. Two of the key provisions in an agreement that the court may review for enforceability are:
- Length – How long is the former employee prohibited from competing with the employer?
- Distance – What is the specific geographic area in which the employee must refrain from competing against their employer?
After working for my employer for three years, I was required to sign a non-compete agreement as a condition of continuing employment. Is this covenant enforceable?
Probably not. In 2015, the Pennsylvania Supreme Court clarified the legal principle of “consideration” as it applies to non-compete agreements. If your employer did not ask you to sign the agreement when you were being hired (when the consideration you were offered was a new job) and you are not being offered a substantial raise or promotion, the agreement is unlikely to withstand scrutiny in court. While you may want to hold onto your job, in the eyes of the law, this is not a “new and valuable” consideration that would legitimize the agreement.
I’m a starting a new business and I would like the employees I hire to sign a non-compete agreement. How can I craft a legally enforceable document?
You have taken a wise first step by planning to require your new employees to sign such agreements at the beginning of their tenure with the company. This satisfies one key test of a non-compete agreement, that it is “incident” to the employment itself. Other factors that courts look at regarding the enforceability of non-compete agreements include:
- Necessity – Pennsylvania courts will take a close look at whether a non-compete agreement is truly necessary to protect the business. If your employees will be learning trade secrets, handling customer lists or following your specific methods for conducting business, you have a greater chance of demonstrating these agreements are necessary.
- Reasonableness – As mentioned in a previous question, the length of the period of restriction and the area in which the employee may not directly compete matter greatly when it comes to enforceability. The employee’s ability to make a living after working for you is taken into consideration.
I was asked to sign a non-compete agreement at my old firm. My new employer is in the same industry and in the same geographic area. Am I at risk of violating my original non-compete covenant?
Yes, perhaps. If you signed the covenant at the beginning of employment or after a big promotion/raise, and your new employer’s service area is well within the geographic boundaries specified in your contract, you could easily lose a case if your former company decided to file suit against you.
Transgressing a non-compete agreement is not something you should take lightly. Your former boss could win damages for the losses the company suffered by your job change, and they could exceed the income you have made since joining the new company.
Trust Our Firm’s Business And Employment Law Experience
Laputka, Bayless, Ecker & Cohn, PC has been serving employers and individual employees with non-compete questions for six decades. We accept clients from cities across northeastern Pennsylvania, including Hazleton, Scranton, Wilkes-Barre and others. To set up a confidential appointment, call our offices at 570-861-5905 or use our online contact form.