Non-Compete Covenants in Pennsylvania
April 24, 2018
by Robert Sebia, Esq.
Pursuant to Pennsylvania law, restrictive non-compete 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. Socko v. Mid-Atl. Sys. of CPA, Inc., 633 Pa. 555, 569, 126 A.3d 1266, 1274 (2015).
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. Capital Bakers Inc. v. Townsend, 426 Pa. 188, 231 A.2d 292, 293–94 (1967). Generally, if a non-compete clause is executed at the inception of the employment, the consideration to support the covenant may be the award of the position itself. An employee’s promotion to a new position within the company also constitutes sufficient consideration. Jacobson & Co. v. Int’l. Environment Corp., 427 Pa. 439, 235 A.2d 612, 618 (1967).
Nevertheless, when a non-compete clause is required after an employee has commenced his or her employment, it is enforceable only if the employee receives “new” and valuable consideration—that is, some corresponding benefit or a favorable change in employment status. Sufficient new and valuable consideration has been found by our courts to include, inter alia, a promotion, a change from part-time to full-time employment, or even a change to a compensation package of bonuses, insurance benefits, and severance benefits. Socko, 633 Pa. at 569–70 (2015). Without new and valuable consideration, a restrictive non-compete covenant entered into after the employment has commenced is likely unenforceable.
The enforceability of non-compete covenants is fact specific and depends on the individual circumstances and facts at hand.
If you are a business owner and are concerned about the non-compete covenants you use to protect your business, or if you are an employee and have questions about an after the fact non-compete you were required to sign, one of the attorneys at HRMM&L would be happy to help you navigate these often complex issues.
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