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Ruling warns employers about restrictive covenants

Running a successful business means staying on top of all new employment law developments. For Pennsylvania employers, the state Supreme Court has made a ruling meant to be a clear message to watch out for the use of restrictive covenants in agreements made after employment.

As we have discussed previously on this blog, normally, a non-compete agreement includes a restrictive covenant that is offered to the potential employee in exchange for something else, usually employment. This practice of trading the non-compete for a job is called consideration, and when it's not present in an agreement, the agreement is not enforceable.

Many employers have employees sign non-competes prior to employment. However, certain situations may prompt an employer to request an employee sign a new non-compete years after their hiring. This is exactly what happened in the recent Pennsylvania Supreme Court decision. Years into his employment, the plaintiff was asked to sign a non-compete similar to the one he signed at the onset of his employment. He then resigned and took another position with a competitor. The plaintiff's previous employer informed his new employer of the non-compete, and he was fired. That is when the plaintiff filed an action against his previous employer stating that there was not consideration given in lieu of the agreement.

After an appeal to the Pennsylvania Supreme Court, a ruling was made in the plaintiff's favor stating that the restrictive covenant put on him was not enforceable because there was no consideration given, even though it replaced a previous agreement.

This ruling should serve as a warning to employers to work with an attorney skilled in employment law when drafting an enforceable non-compete agreement. Staying informed of cases like this that set precedence for situations that many employers may overlook, can help employers protect themselves from damaging lawsuits.

Source: The Legal Intelligencer, "Justices: Consideration a Must for Noncompete Covenant," Lizzy McLellan, Dec. 1, 2015

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