How do non-competition clauses in employment contracts work in Pennsylvania?
UPDATED: September 20, 2012
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Pennsylvania courts will enforce non-competition clauses in employment agreements under some circumstances, but generally not unless it appears the employee deliberately acted to provoke the termination of employment.
These clauses are subject to close judicial scrutiny. If the Court believes that the employee purposely neglected his duties so that the employer would terminate the employee, the Court is likely to enforce the non-competition agreement, provided it is reasonable in geographic scope and limited to a reasonable period of time. In most cases, if you are fired, the court will not enforce a non-competition clause in an agreement.
If your agreement was signed two weeks after you started your job, for example, the agreement may not be considered legally valid and the court may not enforce it. Whether or not the non-compete agreement is legally valid depends on the circumstances at the time you signed the agreement.
One of the reasons a non-competition covenant may not be enforced by the courts deals with adequate consideration. This boils down to what the employee gets out of it. If the employee doesn't obtain any benefit from signing, then the agreement isn't going to be considered legally valid. As such, unless you received something for signing that agreement two weeks after you started, your employer probably isn't going to be able to enforce it.
Generally, a non-competition clause is signed when you take a job in the first place, so getting the job is sufficient consideration. If you are already employed, however, the employer must provide some additional benefits to you for signing. This could be a promotion, a pay raise, change in status or responsibilities, a bonus, a severance package, or other things. However, a small token raise or benefit would not be sufficient because the additional benefit needs to be substantial. Other things that may be considered ample consideration would include a permanent job offer after a probationary period.
Further, non-compete agreements are supposed to protect the employer from unfair competition and the employer has a responsibility to make the agreement reasonable in time and scope. This means, the agreement must last for a reasonable amount of time, depending on the industry. The employer can also include details of scope such as a geographic region, but not the whole country, and may limit contact with certain customers. Finally, a non-compete agreement may not be enforced if the employer has used it to try to eliminate all of the competition or to give himself an unfair advantage.