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Pa.: Court Finds Noncompete Agreement Unenforceable
 

By Rita Zeidner  6/16/2014
 

A noncompetition restrictive covenant entered into after the start of the employment relationship is not enforceable if the employer has not given the employee anything in return, a Pennsylvania court ruled.

The employee, David Socko, was an intermittent salesman for Mid-Atlantic Systems, a Pennsylvania basement water-proofing service. During each of three stints with the company, he signed a noncompetition agreement. The last agreement provided that, for two years after termination of employment, he would not compete with the employer in Pennsylvania or several other named states or in any jurisdiction where the employer did business. The agreement also stated that the parties “intend to be legally bound by its terms.”

On Jan. 16, 2012, Socko resigned from Mid-Atlantic and accepted a position with another Pennsylvania-based waterproofer. After receiving litigation threats from Mid-Atlantic, the new employer dismissed Socko.  

In October 2012, a trial court granted summary judgment to Socko, who had claimed the non-competition agreement is not enforceable because he got nothing in return for his promise. On May 13, 2014, the Superior Court of Pennsylvania, on May 13, 2014, agreed.

Citing earlier case law characterizing restrictive covenants as “a trade restraint”, the court noted that such provisions “have always been disfavored in Pennsylvania.” 

The court acknowledged that noncompete agreements entered into at the commencement of employment will be enforced. In these cases, the employer’s hiring of the employee is the consideration that supports the restrictive covenant, the court noted.

By contrast, where the restrictive covenant is entered into after the commencement of employment, the employer must give something of value in return. This consideration can be in the form of a beneficial change in the employment relationship, the court said. (An example of such a change could be a wage increase.)

In the instant case, there was no such beneficial change and therefore there was no consideration to support the agreement.

Socko v. Mid-Atlantic Systems of CPA Inc., Pa. Superior Court, No. 1223 MDA 2013 (May 13, 2014).

Rita Zeidner is a freelance business writer and former senior writer for HR Magazine.
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