Philadelphia Employment Lawyers discuss Non-Compete Agreements: Is Continued Employment Sufficient Consideration?

Non-compete agreements, or restrictive covenants, have long been disfavored in Pennsylvania. Pennsylvania courts have consistently opined that non-compete agreements are a restraint on trade which could cause a significant hardship on employees who are merely trying to earn a living.

For a non-compete to be enforceable, it must, at the very least be limited in both time and scope. While the courts have not established a bright line rule, they do agree that overly broad non-compete agreements should be struck down. For example, a non-compete agreement that prevents an employee from working anywhere in the United States for a 5 year period would most likely be unenforceable. Conversely, a non-compete agreement limited to a 120-mile radius for a period of 6 months would most likely be enforced.

In addition, non-compete agreements MUST contain adequate “consideration” to be enforceable. Adequate consideration has been found where 1) the non-compete agreement is part of an initial employment contract and the consideration is the job itself; or 2) where a non-compete agreement is introduced during employment and contains some type of added benefit or change in status to the employee.

In the recent case of Socko v. Mid-Atlantic Systems of CPA, Inc., 2014 WL 1898584 (Pa. Super. 2013), the Pennsylvania Superior Court was faced with a non-compete agreement that was entered into after the employee had already been employed for a significant amount of time. Socko was a salesman for Mid-Atlantic, a basement waterproofing business. Socko was hired by Mid-Atlantic in March of 2007 and signed an employment contract containing a two-year covenant not to compete. He resigned in 2009, was rehired 3 months later and signed a new employment contract containing another two-year non-compete.

Approximately a year-and-a-half later, while still working at Mid-Atlantic and doing the same job, he signed a third employment contract which once again contained a non-compete agreement. In arguing that the most-recent non-compete was enforceable, Mid-Atlantic did not dispute that it was signed during the course of Socko’s employment nor did they dispute the fact that Socko received no benefit or change in employment status when he signed it. Rather, Mid-Atlantic argued that the words “intending to be legally bound,” which were contained in the agreement, created sufficient consideration for the non-compete. Mid-Atlantic argued that under the Uniform Written Obligations Act (UWOA) agreements containing such language cannot be avoided for lack of sufficient consideration.

The trial court disagreed with Mid-Atlantic, finding that the words were not sufficient consideration. On appeal, the Superior Court agreed, holding that contractual language which satisfied the UWOA did not provide Socko with any actual benefit and that without actual benefit to the employee, there was not adequate consideration to enforce his non-compete agreement. Presumably, Mid-Atlantic discerned that its final non-compete agreement would be held invalid when examined traditionally and it attempted to rely on a novel approach. However, once again, a Pennsylvania Court showed that it disfavors non-compete agreements where the employee receives no benefit.