Non-compete agreements, also known as covenants not-to-compete or simply non-competes, can be a particularly sensitive issue to both employer and employee. The employer will want to maximize the protection of its interests while the employee needs to ensure that his freedoms are protected.
Non-compete agreements can be vital to business interests, particularly where an employer invests a great deal of resources into training an employee or where the employee will gain knowledge of products, services or clients that if placed in the hands of a competitor can damage the employer’s competitive advantage unfairly. On the other side of the equation, an employee who resigns and finds a job in violation of a non-compete agreement can be seemingly unjustly stripped of his livelihood.
Pennsylvania law enforces non-compete agreements, but views them critically. The critical view is due to the restrictive nature non-compete agreements have on individual employees and free trade. Such post-employment restrictions potentially restrain the employee from earning a living at the trade he has developed, and limit competitive innovation in the marketplace.
Pennsylvania courts have outlined what it takes to have an enforceable non-compete agreement. First, the restrictions have to be sufficiently related to the employment relationship. Second, the agreement has to be supported by consideration, an exchange of value usually in the form of money or benefits from the employer. The consideration generally has to be more than a token amount or a promise of continued employment. Third, the restrictions have to be reasonably necessary to protect the employer’s interests beyond simple limitation of competition. This could be the protection of confidential information, trade secrets and business practices. For instance, an employee who could use his knowledge of the employer’s customer list and customer information to the benefit of a competitor would justify the protection of the employer’s interests through a non-compete agreement.
Finally, the non-compete agreement has to be limited in time and geography only to that which is reasonably necessary to protect the employer’s interests. This is dependent upon the business interests at stake and the scope of the employer’s market. The agreement cannot, for example, prohibit a former employee from working in the same industry nationwide when the employer is limited foreseeably to a local market. The enforceability of the duration of a non-compete agreement is considered in light of factors like the employee’s duration of employment with the employer and the frequency of contact between the employer and its clients. The greater the duration of the employee’s employment and the lesser the frequency of client contact in the industry, the greater the duration of the non-compete that will be enforceable.
Entering into a non-compete agreement without legal advice can leave an employer exposed if a court later finds the agreement to be unenforceable or cause an employee to unnecessarily bargain away valuable freedoms. Getting the advice from an attorney is the best course of action.
*This article is for general informational purposes only and is not intended as or a substitute for legal advice.