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Non-compete agreements not always enforceable

by | Aug 23, 2018 | employment contracts, Firm News |

Non-competition agreements prohibit employees from working for a competitor for a certain time or within a geographic area. The use of these clauses in employment contracts is on the rise for all types of employment.

Noncompete clauses, also known as restrictive covenants, are not always enforceable in Pennsylvania. First, an employer must have a valid business interest and may not enforce this restriction just to eliminate competition or gain an unfair advantage. An employee must also receive something in return for signing these agreements. Current employees may be entitled to a higher salary, cash payment, or something else that is valuable.

Noncompete agreements may not be assigned to another business unless the employment contract has specific terms allowing this transfer. However, these are usually enforced for parties in agreements for the sale of a business because both parties had equal negotiating power.

Federal and state courts in Pennsylvania generally allow agreements that are reasonable in time and scope. A one to three- year period is usually considered a reasonable time restriction. Nationwide scopes may also be enforced depending on the type of business. However, geographic restrictions are usually limited to the territory where the worker did business for that employer.

There has been a growing trend to ban these agreements in other states. Legislation was also introduced in the Pennsylvania legislature in 2017 that would prohibit these clauses. But, the House Labor and Industry committee has not acted upon it.

Employees who are negotiating employment contracts or dealing with noncompete contracts should seek legal assistance. An attorney may help overcome restrictions or fight agreements that are unreasonable or illegal.