Articles Tagged with Non-Compete

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Restrictive covenants are contractual clauses that limit an employee’s post-employment activities for a specified length of time and geographic area.  Their enforceability varies by state and by profession.  For example, restrictive covenants are unenforceable in the legal profession but are enforceable in the medical profession. The American Medical Association, however, discourages restrictive covenants between physicians. Yet it deems them ethical unless they are excessive in geographic scope or duration, or fail to reasonably accommodate patients’ choice of physician.

The determination of whether a restrictive covenant is reasonable is a factual one that is assessed on a case-by-case basis: courts weigh the competing interests of the employee versus the employer, and typically the burden is on the employer to demonstrate that the restrictive covenant protects the employer’s interests without posing an undue hardship on the employee.

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.  Hess v. Gebhard & Co. Inc., 808 A.2d 912 (Pa. 2002).

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On May 13, 2014, the Superior Court of Pennsylvania, in Socko v. Mid-Atlantic Systems, clarified the requirement of new consideration when an employer and employee enter into an employment agreement containing a non-competition restrictive covenant after commencement of employment. As an appellate decision, this new clarification leaves a lasting and binding effect on the trial courts.

When Mid-Atlantic hired Socko as a salesman in March 2007, Socko signed an employment agreement with a two-year covenant not to compete.  He resigned in February 2009, but was rehired in June 2009 and signed a new employment agreement with a similar two-year covenant not to compete.  Subsequently, he signed a third employment agreement on December 28, 2010 containing a two year non-compete covering eight named states, including Pennsylvania, and anywhere else that Mid-Atlantic did business.   In January 2012, Socko resigned and took a position with a competitor basement waterproofing company located in Camp Hill, Pennsylvania.  Mid-Atlantic wrote the new employer enclosing the third employment letter and threatening litigation.  The new employer terminated Socko, who sued for declaratory judgment seeking a determination that the non-compete provision of the employment agreement was unenforceable for lack of sufficient consideration.

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